
Class 



hi ink 



HS/g/ 

«4^ 



i'i;i:si-..\ri:n i;v 



MORAL SCIENCE, ABRIDGED FOR SCHOOLS. 

D^=" Teachers, School Committees, and all interested in the moral train- 
ing of youth, are invited to examine Wayland's Elements of Moral Science 
ABRIDGED and adapted to the use of Schools, by the Author. It has been ex- 
tensively 'ised, and with much interest and benefit to the pupils, and is admirably 
adapted to exert a wholesome infiitnce on the minds of the young, and lead to 
the formation of correct moral principles. It has received unqualified praise 
from our most eminent teachers of youth, and all commend it for use in our 
Common Schools, where the earliest openings of the youthful mind may bd 
directed in the paths of morality, virtue and happiness. 

From the North American Review. 

" Dr. Wayland has published an abridgement of his work, for the use of 
Schools. Of this step we can hardly speak too highly. It is more than 
time that the study of moral philosophy should be introduced into all our 
institutions of education. We are happy to see the way so auspiciously 
opened for such an introduction. It has been not merely abridged, but 
also re-written. We cannot but regard the labor as well bestowed." 

From the Christian Witness. 

" We speak that we do know, when we express our high estimate of Dr. 
Wayland's ability in teaching Moral Philosophy, whether orally or by the 
book. Having listened to his instructions in this interesting department, 
we can attest how lofty are the principles, how exact and severe the argu- 
mentation, how appropriate and strong the illustrations which characterize 
his system and enforce it on the mind." 



POLITICAL ECONOMY, ABRIDGED FOR SCHOOLS. 

D^" The success which has attended the abridgement of " The Elements of 
Moral Science," has induced the author to prepare an abridgement of this 
work. In this case, as in the other, the work has been wholly re-written, and 
adapted to the attainments of youth. 

" Both the rising and risen generations are deeply indebted to Dr. Way- 
land, for the skill and power he has put forth to bring a highly important 
subject distinctly before them, within such narrow limits. Though 
1 abridged for the use of academies,' it deserves to be introduced into every 
private family, and to be studied by every man who has an interest in the 
wealth and prosperity of his country. It is a subject little understood, 
even practically, by thousands, and still less understood theoretically. It 
is to be hoped this will form a class-book, and be faithfully studied in our 
academies ; and that it will find its way into every family library, to afford 
rich material for thought and discussion in the family circle. " It is fitted 
to enlarge the mind, to purify the judgment, to correct erroneous popular 
impressions, and assist every man in forming opinions of public measures, 
which will abide the test of time and experience." — Boston Recorder. 

" We can say, with safety, that the topics are well selected and ar- 
ranged ; that the author's name is a guarantee for more than usual excel- 
lence. We wish it an extensive circulation." — New York Observer. 

" It is well adapted to high schools, and embraces the soundest system 
of republican political economy of any treatise extant." — Daily Advocate. 



NEW PUBLICATIONS. 



i. 
THE EARTH AND MAN: 

Lectures on Comparative Physical Geography, considered in its Relation to the History of 

Mankind. By Arnold Guvot, Prof. Phys. Geo. & Hist., Neuchutel. 

Translated from the French, by Prof. C. C. Felton. — With Illustrations. 

II. 

MAN PRIMEVAL: 

Or the Constitution and Primitive Condition of the Human Being; A Contribution to 

Theological Science. 

By John Harris, D. D., Author of the Pre-Adamite Earth, Mammon, etc. 

With a Portrait of the Author. 

III. 

Second Thousand. 

THE PRE-ADAMITE EARTH: 

Contributions to Theological Science. 

By John Harris, D. D. 

IV. 

REPUBLICAN CHRISTIANITY: 

Or True Liberty, as exhibited in the Life, Precepts, and Early Disciples of the Oreat 

Redeemer. Br E. L. Mauoon, Author of "Proverbs for the People," 

" Orators of the American Revolution," etc. 

V. 
A HISTORY OF 

THE AMERICAN BAPTIST MISSIONS, 

In all parts of the World, from their earliest commencement to the present time. Prepared 

under the direction of the American Baptist Missionary Union. 

By William Gammell, A. M., Professor in Brown University. 

VI. 
SACRED RHETORIC: 

Or th* Composition and Delivery of Sermons ; including Ware's Hints on Extem- 
poraneous Preaching. 
By Henry J. Ripley, Prof, in Newton Theological Institution. 

VII. 

THE CHURCH IN EARNEST. 
By John Angell James. 

vin. 
WAYLAND'S UNIVERSITY SERMONS. 

Sermons delivered in Brown University. 
By Francis Wayland. 

Contents. — Theoretical Atheism. Practical Atheism. Tho Moral Character of 
Man, Love to God. The Fall of Man. Justification by Works Impossible. Prepar- 
ation for the Advent of The Messiah. The Work of the Messiah. Justification by 
Faith. A Day in the Life of Jesus of Nazareth. Tiie Fall of Peter. The Church 
of Christ. The Unity of the Church. Tho Duty of Obedience to the Civil Magis- 
trates. The recent Revolutions in Europe. 



THE 



ELEMENTS 



POLITICAL ECONOMY. 



By FRANCIS WAYLAND, D. D., 

PRESIDENT OF BROWN UNIVERSITY, AND PROFESSOR OF 
MORAL PHILOSOPHY. 



SEVENTEENTH THOUSAND. 



BOSTON: 
GOULD, KENDALL, AND LINCOLN. 

NO. 59 WASHINGTON STREET. 

1849. 






*y$» 



^ 



Entered according to Act of Congress, in the year 1837, by 

FRANCIS WAYLAND, 

ia the Clerk's office of the District Court for the District of Rhode Island. 



Gift 

Mn. Max Wert 

1016 



PIvESS OF «. C. RAND & CO. 



PREFACE. 



The following work contains, in substance, the 
Lectures on Political Economy which have been 
delivered, for some years past, to the Senior Class in 
Brown University. 

When the Author's attention was first directed to 
the Science of Political Economy, he was struck 
with the simplicity of its principles, the extent of its 
generalizations, and the readiness with which its 
facts seemed capable of being brought into natural 
and methodical arrangement. At the same time, it 
appeared to him that the works on this subject, in 
general use, while they presented its doctrines truly, 
yet did not present them in such order as would be 
most likely to render them serviceable either to the 
general student, or to the practical merchant. This 
defect, for the sake of his pupils, he endeavored to 
supply. What he thus at first prepared for them, he 
now offers to the public. In how far he has suc- 
ceeded, it must be left for others to decide. 

His object has been to write a book, which any 
one who chooses may understand. He has, there- 
fore, labored to express the general principles in the 
plainest manner possible, and to illustrate them by 
cases with which every person is familiar. In doing 



PREFACE. 



this, he is aware that he may at times have become 
chargeable with repetition. Sometimes, the same 
case may have been introduced a second time, for 
the sake of illustrating a different principle. At oth- 
er times, the same fact may belong equally to two 
different divisions of the subject. In this latter case, 
he has introduced it the second time instead of refer- 
ring the reader to what has been said before, because 
he believes that readers rarely take the trouble to 
make use of a marginal reference. 

The principles of Political Economy are so closely 
analogous to those of Moral Philosophy, that almost 
every question in the one, may be argued on grounds 
belonging to the other. He has not, however, 
thought it proper, in general, to intermingle them, 
but has argued economical questions on merely eco- 
nominal grounds. For this reason, he has omitted 
many considerations which are frequently introduced 
into discussions on this subject. For instance, on 
the question of protecting duties, it is frequently 
urged, that, if a contract have been made by the 
government with the manufacturer, that contract is 
morally binding. This, it will be perceived, is a 
question of Ethics, and is simply the question, 
whether men are or are not morally bound to fulfil 
their contracts. With this question, Political Econ- 
omy has nothing to do. Its only business is, to de- 
cide whether a given contract were or were not wise. 
This is the only question, therefore, treated of in the 
discussion of this subject in the following work. 

It may possibly be urged that the Author, having 
had no experience in mercantile business, should 
have left this subject to be treated of, by practical 



PREFACE. V 

men. To this he has only to reply, that principles 
belong to all men ; that there seemed very little 
hope that this subject would be undertaken by men 
engaged in active business ; and that he could not 
perceive why his doing, as well as he was able, a 
work which seemed to be necessary, should prevent 
any one else from doing it as much better as he 
saw fit. 

It has been to the Author a source of regret, that 
the course of discussion in the following pages, has 
unavoidably led him over ground which has fre- 
quently been the arena of political controversy. In 
all such cases, he has endeavored to state what 
seemed to him to be the truth, without fear, favor, 
or affection. He is conscious to himself of no bias 
towards any party whatever, and he thinks that he 
who will read the whole work, will be convinced 
that he has been influenced by none. While he 
cherishes for his fellow citizens, who are engaged in 
political warfare, every feeling of personal respect, 
he desires it to be believed that he entertains for 
party itself, whether political, ecclesiastical, or social, 
the opinion which "befits him as an American, a 
Christian, and a gentleman." * 

It having become necessary to print a third edition 
of the Elements of Political Economy, the Author 
has revised the work with all the attention of which 
he was capable. He hopes that it will be found that 
he has improved it, by omitting in a few cases what 
was superfluous, by rendering more intelligible what 

* Col. Hutchinson, when speaking in the British Parliament, re- 
specting the part which he had taken in the King's death. 



Vt PREFACE. 

was obscure, and by adding in several places such 
suggestions as have arisen from an observation of the 
commercial condition of our country within the last 
two or three years. The Author also hopes that the 
present edition will appear in a better dress and at a 
lower price than those which have preceded it ; and 
thus be more deserving of the attention of those in- 
structors who have used it as a text-book. 

Brown University, May 1, 1840. 



PREFACE TO THE FOURTH EDITION. 

The demand for the Elements of Political Econo- 
my having been such as to induce the publishers to 
stereotype it, the Author has given to it a careful 
revisal. A few paragraphs have been omitted, a few 
have been added, and some of its doctrines have 
been slightly modified. No material alteration has 
however been made. Grateful for the kindness with 
which it has been received, and in the hope that it 
may conduce, in some small degree, to facilitate the 
study of the science of which it treats, it is again 
submitted to the judgment of the public. 

Brown University, October 1, 1841. 



CONTENTS 

AND 

PLAN OF THE WORK. 



INTRODUCTION. 

DEFINITIONS, AND DIVISION OF THE SUBJECT. 

Pago 
Political Economy, Wealth, ..... 15 

Value, Intrinsic, . . . . . . .16 

" Exchangeable, ..... IB 

Cost, . . . . . . . .24 

Production, ....... 24 

Exchange, . ....... 25 

Distribution, ....... 26 

Consumption, . . . . . . .26 



BOOK FIRST. 

OF PRODUCTIOxH. 

CHAPTER FIRST. 

OF CAPITAL. 
The Nature of Capital, ...... 30 

The Forms of Capita], . 30 

The Changes which Capital undergoes, . . . .31 

The Increase of Capital, ..... 33 

Productive and unproductive Capital, . . . .35 

Fixed and circulating Capital, .... 36 

Money, . ....... 41 

CHAPTER SECOND. 

OF INDUSTRY. 

PART I. 

THE OBJECTS AND FORMS OF HUMAN INDUSTRY. 

SECTION I. 

The different Objects of Human Industry. 

Change of Elementary form, . . . . .43 

Change of Aggregate form, ..... 44 

" " Place, 44 

General Conclusions, . ..... 46 



V 1 11 



CONTENTS. 



SECTION II. 

The different Foems of Human Industry. 

Industry of Discover}', . . . . . .50 

" " Invention, ..... 50 

Operative Industry, . . . . . .52 

Or" the Products of" these various forms of Human Industry, 54 

The Product of the Operative Laborer, . . . .54 

" " Discoverer, .... 55 



PART II. 

THE MODES BY WHICH THE PRODUCTIVENESS OF HUMAN INDUSTRY 
MAY BE INCREASED. 



SECTION I. 

The use of Natural Agents. 

Of Natural Agents, 

Of Tools and Machines, . . . 

Of Natural Agents which create Momentum. 

Of Animate Agents, .... 

Of Inanimate Agents, . . . 

Gunpowder, ..... 

Wind, ..... 

Gravitating power of Water, . 

Steam, ..... 

The advantages of Inanimate over Animate Agents, 

Of the Natural Agents by which Momentum is applied, 

Uses of these Agents, ..... 



60 
60 
60 
62 
62 
64 
65 
66 
67 
68 
70 
72 



SECTION II. 

Of Division of Labor. 
Principles on which the utility of Division of Labor depends, 



76 



SECTION III. 

Limitations to the Division of Labor. 



From the Nature of the Process, 

From other Causes, 

Capital, 

Demand, 

Of National Division of Labor, 



83 
83 
83 

85 
98 



SECTION IV. 

Effects of the increased productiveness of Human Industry. 

I. Effect upon Producers, . . . ... 97 

Immediate, ....... 97 

Ultimate, ........ 99 

II. Effect upon Consumers, .... 103 



CONTENTS. IX 



CHAPTER THIRD. 

OF THE LAWS WHICH GOVERN THE APPLICATION OF LABOR TO 
CAPITAL. 

SECTION I. 

The Conditions op our Being, on which the Laws on this Subject 

are founded, • • • • . .105 

SECTION II. 

Industry will be applied to Capital, as evert Man enjoys the 
advantages op his labor and capital. 

As every man may gain all he can, . . . 109 

As every man may use his own as he will, . . . 109 

SECTION III. 

Labor will be applied to Capital, as every Man suffers the incon- 
veniences of Idleness, . • • • • 118 
Poor Laws, . . . . ... . 120 

SECTION IV. 

The greater the Ratio op Capital to Labor, the greater wll be 

the Stimulus to Labor, .... 1*J 

SECTION V. 

Industry will be applied to Capital, in proportion to thb Intellec- 
tual Condition of a People, • • • • 126 

SECTION VI. 

Op the Effects of direct Legislation, as a means op increasing 

Production. 

Production, ....... 133 

Of Protecting Duties, ...... 135 

Of Bounties, . ..... 140 

Objections Considered, ...... 140 



BOOK SECOND. 

EXCHANGE. 

CHAPTER FIRST. 

BARTER, OR EXCHANGE IN KLND. 

SECTION 1. 
Op thb Principles in ouii Constitution which givh rise to Exchange, 154 



X CONTENTS. 

SECTION II. 

General Doctrines op Exchange. 

Of the exchangeable value of Products, . . . 165 

Exchange confers no new value, .... 109 

Conditions on which frequency of Exchange depends, . 172 

Stagnation of Business, . . . . . 178 

Effects of legislative enactments on Exchange, . . 181 

Internal Improvements, ..... 183 

CHAPTER SECOND. 

EXCHANGE BY MEANS OF A METALLIC CURRENCY. 

SECTION 1. 
Op the Use op a Circulating Medium, .... 188 

SECTION II. 

Of the Qualities necessary to that which constitutes a Circulating 

Medium, ....... 195 

SECTION III. 

Op the Functions op Money, ..... 200 

;; SECTION IV. 

Op the Agency op Government, in respect to a Circulating Medium, 216 

CHAPTER THIRD. 

OF A CIRCULATION BY MEANS OF A PAPER CURRENCY. 

SECTION I. 

Op the Nature of Banks in General. 

Banks of Deposit and Exchange, .... 224 

Banks of Discount, or Loan, .... 232 

Banks of Circulation, or Issue, ..... 235 

Of the Sources of the Profit of Banks, ... 241 

SECTION II. 

Of the Utility op Banks. 

As Institutions of Deposit, ..... 242 

" " Loan, ..... 245 

" " Circulation, ..... 259 

SECTION III. 

Advantages and Disadvantages of a Paper Circulation, . • 261 

SECTION IV. 
Op the Aobncy op Society, that ib, op Government, in Rebpect to a 

Paper Cikbuhtion, ..... 277 



CONTENTS. XI 

BOOK THIRD. 

OF DISTRIBUTION. 

CHAPTER FIRST. 

WAGES, OR THE PRICE OF LABOR. 

SECTION I. 

The General Principles of Wages. 

Of Simple Labor, ...... 291 

Of Educated Labor, ...... 291 

Of the supply of Simple Labor, ..... 298 

Of the demand for Simple Labor, .... 299 

Population and Wages, . .... 301 

Labor in the Fine Arts, ..... 309 

SECTION II. 

Op the Special Circumstances by which, irrespectively op Capital, 

the wages op labor are affected, .... 310 

CHAPTER SECOND. 

THE PRICE OF MONEY, OR INTEREST. 

SECTION I. 
Of the benefit of Capital to the Laborer, ... S15 

SECTION II. 

Of Risk and Convenience op Investment. 

Of Risk, .....'.. 319 
Of Convenience of Investment, .... 323 

SECTION III. 

Of the Rate of Interest, as affected by the use of Capital. 

By the average profit of Capital, .... 324 

" Ratio between Supply and Demand, . . . 325 

" Freedom of Capital, ..'... 328 

" Taxation, ....... 329 

" Usury Laws, ....... 329 

Of Stocks, 334 

CHAPTER THIRD. 

OF THE PRICE OF LAND, OR RENT. 

Price of Land, or Rent, . . . . . . 339 

Mines, ....... 352 

Interest of Real Estate, ••.... 354 

Extent of Business, ...... 357 

Insurance, ...... 359 



Xll CONTENTS. 

BOOK FOURTH. 

OF CONSUMPTION. 

CHAPTER FIRST. 

OF THE NATURE AND DESIGN OF CONSUMPTION. 

Nature of Consumption, ...... 362 

Design of Consumption, ..... 366 

CHAPTER SECOND. 

OF INDIVIDUAL CONSUMPTION. 

SECTION I. 

Op Individual Consumption, for the sake of Re-production. 

Of Consumption of Capital, ..... 370 
Of Consumption of Labor. ..... 373 

SECTION II. 

Op Consumption for the Gratification op Desire. 

Of Consumption for the purpose of self-gratification, simply, . 379 
Consumption in respect to the relative Objects of Desire, . 382 

CHAPTER THIRD. 

OF PUBLIC CONSUMPTION. 

SECTION I. 

Op Taxes, or the manner in which the Public Expenditure is provided 

for. 

Of direct and indirect Taxation, .... 391 

Of the Principle by which Taxation should be regulated, . 395 

SECTION II. 

Of the purposes for which the Public Revenue is commonly Expended. 

Of the Expenses of Civil Government, .... 398 

Expenses for Public Education, .... 399 

" " Maintaining Religious Worship, . . 403 

" " National Improvement, . . 404 

** " Pauperism, . . . i . 405 

•» «« War, • 406 



POLITICAL ECONOMY. 



INTRODUCTION. 

DEFINITIONS, AND DIVISION OF THE SUBJECT. 

1. Political Economy is the Science of Wealth. 
It is sometimes defined the Science of National Wealth. 
This definition seems not, however, sufficiently compre- 
hensive ; inasmuch as, the laws which govern the crea- 
tion of wealth are essentially the same, whether they 
are considered in respect to man as an individual, or to 
man as a society. 

By Science, as the word is here used, we mean a 
systematic arrangement of the laws which God has es- 
tablished, so far as they have been discovered, of any 
department of human knowledge. It is obvious, upon 
the slightest reflection, that the Creator has subjected 
the accumulation of the blessings of this life to some 
determinate laws. Every one, for instance, knows that 
no man can grow rich, without industry and frugality. 
Political Economy, therefore, is a systematic arrange- 
ment of the laws by which, under our present constitu- 
tion, the relations of man, whether individual or social, 
to the objects of his desire, are governed. 

2. Wealth. It has been frequently remarked, that 
the universe around us is composed of objects suited to 
gratify our desire, and thus minister to our happiness. 
The capacity to gratify desire, is, therefore, the first 
element that enters into our notion of wealth. But as 



16 OF VALUE. 

the gratification of our desires, by means of an external 
object, almost always supposes some change effected 
in that object ; and, as we could have no right to effect 
that change, unless that object were our own, another 
element, which enters into the notion of wealth, is the 
idea of possession. Hence, wealth may be defined any 
object, having the power of gratifying human desire, 
which is capable of being appropriated. He who pos- 
sesses many of these objects in abundance, is termed 
rich. He who possesses few of them, is termed poor. 
He who possesses a large amount of money, is also 
called rich ; because, with money, he can generally 
procure whatever else of physical convenience he may 
desire. 

3. Of value, intrinsic and exchangeable. The par- 
ticular quality in any substance, which renders it capable 
of gratifying human desire, is called its value. Thus, 
that quality of fuel, which constitutes its value, is its 
power of generating heat, or of gratifying this desire in 
man. A particular substance may have the power of 
gratifying either one or several desires, and thus it may 
have either one or several values. Thus anthracite coal 
is at present known to have but one value, namely, that 
of generating heat. Bituminous coal possesses also an- 
other, as it is also used in the manufacture of gas for 
the purposes of illumination. Wood has several values, 
inasmuch as, besides being used for fuel, it may also be 
used for building, and for various purposes in the arts. 
Iron has as many forms of value, as there are uses to 
which it may be applied, in promoting the convenience 
of man. 

The degree of the intrinsic value of any substance, 
depends upon the nature and the number of the desires 
which it can gratify. If the gratification of that desire 
to which it is subservient, be necessary to the existence 
or to the comfort of man, its value will be great. Such 
is the case with air, water, clothing, food, and fuel. If 
the gratification which it affords can be easily dispensed 
with, its value will be small. Such is the case with ar- 
ticles of luxury, or the means of mere amusement. 



OF VALUE. 17 

The inferiority of the value of this latter class, is evi- 
dent from the fact, that, in seasons of scarcity, these are 
first relinquished. And again, the degree of the value 
of any substance, depends upon the number of desires 
which it can gratify. India Rubber, or Caoutchouc, a 
few years since, was used but for one purpose, that of 
rubbing out pencil marks. It is now used in the manu- 
facture of shoes, and for several other very important 
purposes. The intensity of its value is, therefore, 
greatly increased. 

We have thus far treated only of intrinsic value, or 
of the power which any particular substance possesses, 
of gratifying human desire. 

If, however, we examine the various articles of value 
around us, we shall observe a veiy remarkable difference 
between them. Some of them may be made the means 
of procuring for us, by exchange, other objects of desire. 
Such, for instance, are gold, silver, iron, coal, wood, &c. 
He who possesses a large quantity of either of these, 
may, ordinarily, procure for himself, by exchange, any 
thing else that he needs. Others, on the contrary, and 
those of great intrinsic value, are destitute of this prop- 
erty. What has greater intrinsic value than air, the 
light of the sun, or water ? Yet we can get nothing in 
exchange for air or sun-light, and very rarely for water. 
And again ; substances having an exchangeable value, 
do not possess that value, in proportion to their intrinsic 
value. Iron has a far greater intrinsic value than gold ; 
yet, an ounce of gold has a far greater exchangeable value 
than an ounce of iron ; that is, an ounce of gold will 
procure for us many more articles of convenience, in 
exchange. This latter property, or the power of pro- 
curing for us something else in exchange, is called ex- 
changeable value. 

If, now, we compare those substances which have 
not, with those which have exchangeable value, we shall 
find them to differ in the following respects : 

1. Those which have no exchangeable value, are 
every where abundant and inexhaustible. The supply 
of the others is limited in quantity or is limited in place. 
2* 



18 OF EXCHANGEABLE VALUE. 

Air, and the light of the sun, are inexhaustible every 
where. Coal is in some places inexhaustible, but it is 
not so in others. Where it lies, for miles together, im- 
mediately upon the surface, and in beds of unknown 
thickness, it has no exchangeable value. Where it 
must be carried to any distance, to be brought to the 
consumer, it then acquires an exchangeable value. 

2. The value of the first class of substances has re- 
ceived no addition from human labor 1 but derives what- 
ever qualities it possesses, directly from the gift of God. 
The value of the other, has always received some addi- 
tion, and, frequently, it is derived altogether from human 
labor. Neither air, nor the light of the sun, can receive 
any additional power of gratifying human desire, from 
any effort of man. On the contrary, all the most im- 
portant values of iron, are derived from human skill. 
A lump of iron ore is as valueless as granite or sand- 
stone. The peculiar properties of the metal, are the 
result of the processes through which it passes. When, 
however, a substance which ordinarily possesses only 
intrinsic value, is placed under such circumstances that 
human labor must be added to it in order to enable it 
to gratify desire, it then acquires exchangeable value. 
Thus, water, which ordinarily, has no exchangeable 
value, is frequently sold by the gallon in cities, because 
it can be procured in purity only from a distance, and 
hence, before it can gratify the desire of particular indi- 
viduals, it requires the labor of transportation to be 
added to it. 

We see, then, that every substance on earth may 
have, and, doubtless, it actually has, intrinsic value. If 
we then consider all those qualities which are necessary 
to prepare a substance for the gratification of human 
desire to be intrinsic values, these may be divided into 
two kinds ; first, those which are imparted to the sub- 
stance by the immediate act of God ; and, secondly, 
those that are imparled to it through the intermediate 
agency of man. The former, being the gift of God, 
are gratuitously received, and gratuitously parted with. 
The latter have cost human labor, and therefore cannot 



OF EXCHANGEABLE VALUE. 19 

be obtained without an equivalent. Hence it is the 
latter alone, that enter into computation, in fixing ex- 
changeable value. Thus the exchangeable value of iron 
and of gold, respectively, does not depend upon the 
uses to which these metals may be put, but upon the 
labor which must be employed in preparing them to 
gratify desire. 

But it is plain, that if a man expend labor in the 
creation of a value, this labor gives him a right to the 
exclusive possession of that value ; that is, supposing 
the original elements belonged to no one else. Now, as 
almost all the qualities which gratify human desire, can 
exist only by the exertion of this labor, it follows, that 
all such objects must have already become the exclu- 
sive possession of some human being. Hence, he who 
wishes to possess such objects, must either himself ex- 
pend the labor necessary for producing them, or else he 
must procure them by voluntary concession, from some 
one who nas already expended it. But he who has ex- 
pended labor upon a substance, will never voluntarily 
surrender it up, either for nothing, or for that which he 
can obtain without labor. He who makes knives, will 
neither give them away, nor exchange them for air, or 
water, or sun-light. Hence, he who wants knives must 
either make them himself, or else he must offer the 
knife-maker, in exchange for them, some value which he 
himself has created. Hence, every man who desires 
the means of happiness, must labor to obtain them. 
And, as every man has his preference for snne particu- 
lar kind of labor ; and as, moreover, c\ ery man can 
succeed better by confining his labor to one thing, than 
by devoting it to twenty things, every man is desirous 
of exchanging some portion of the value created by 
himself, for that created by others. So soon as this is 
the case with any one substance, it then has acquired 
exchangeable value : that is, just so soon as other men 
are willing to give me a value which they have created, 
for that which I have created, then the result of my la- 
bor has exchangeable value, and not before. 

The degree of the exchangeable value of any one 



20 OF EXCHANGEABLE VALUE. 

substance, depends chiefly upon the amount of labor and 
of skill necessary to create that value. No one would 
exchange what has cost him two days' labor, for that 
which has cost another man of the same skill, but one 
day's labor ; because, rather than make such an ex- 
change, he would create this second value for himself. 
Thus, if a hundred pounds of fish could be procured by 
a day's labor, and only twenty-five pounds of venison ; 
men would exchange, not pound for pound, but labor for 
labor : that is, at the rate of four pounds of fish for one 
pound of venison. The amount of labor expended in 
the creation of a value, is commonly denominated its 
cost. This is always the standard by which, for long 
periods, the degree of exchangeable value may be esti- 
mated. 

When, however, we here speak of labor, we speak 
of it as simple labor ; that is, without taking into con- 
sideration the degree of skill which may be combined 
with it, or the other circumstances which may conspire 
to create variation in its value. These are to be con- 
sidered hereafter. We suppose, in the remarks above, 
that, in all cases, labor of the same kind is to be com- 
pared together. 

I have said above, that cost forms the standard by 
which the degree of exchangeable value for long periods 
is to be estimated. Temporary circumstances may cre- 
ate a variation from this standard ; and may, for a short 
time, elevate this value above, or depress it below, the 
cost. These, however, can continue to operate but for 
a short period ; the tendency of exchangeable value is 
always to gravitate towards cost. The causes of this 
variation, we will now briefly illustrate : 

1. Suppose, that by the use of better tools, or from 
any other cause, the supply of fish became more abun- 
dant, so that a man could, by one day's labor, procure 
two hundred instead of one hundred pounds. The 
hunter would not then be willing to exchange as before, 
since he would now rather catch fish for himself. He 
would demand eight pounds of fish for one pound of veni- 
son : that is, the exchangeable value of fish would fall ; or, 



OF EXCHANGEABLE VALUE. 21 

in other words, it could not procure as much venison in 
exchange as it did before. But as, in consequence of 
this reduction in price, there would be an increased de- 
mand for fish ; that is, more persons would want it, and 
they would also want a larger quantity than before, the 
fisherman would not be obliged to exchange at half the 
former rate, but would be able to exchange at a rate 
somewhat above it ; say, perhaps, six or seven pounds 
for a pound of venison. Thus, both parties would be 
gainers. The fisherman would procure more venison ; 
the hunter more fish, by a day's labor. Thus, a benefit 
to one, is a benefit to all. And thus we see, that, other 
things being equal, the greater the supply of any article, 
the less is its exchangeable value ; that is, the less 
amount of other things, can it procure in exchange. 

2. Supposing the labor necessary for taking fish to be 
doubled ; so that, by the labor of a day, no more than 
fifty pounds could be procured. The fisherman, then, 
would not sell, as at first, four pounds of fish for one 
pound of venison ; he would rather hunt venison for 
himself. He would offer but two pounds of fish for a. 
pound of venison. But as, at this rate, the number of 
his customers would be greatly diminished ; and as 
every person would use less fish than before, he would 
find it difficult thus to dispose of the results of his labor, 
and would be obliged to offer it on more favorable terms, 
say two and a half, or three pounds, for a pound of veni- 
son ; thus, with a day's labor, he would procure less 
venison, and the hunter less fish. That is, the evil 
would be shared between them ; and thus, an injury to 
one, is an injury to all. Thus, other things being equal, 
the less the supply, the greater is the exchangeable 
value. 

3. Suppose the labor necessary for procuring fish, 
remain the same, but that, from some cause, twice as 
many persons desired fish as before. Suppose that 
every person desired five pounds, but that there was 
only enough to supply half the population with this 
quantity. Then there would arise a competition among 
the buyers, and he who obtained this quantity must 'ob- 



22 OF EXCHANGEABLE VALUE. 

tain it by overbidding his neighbor. Thus, fish would 
command a larger amount of venison in exchange than 
before ; that is, the exchangeable value of fish would 
rise, and it would continue at this point, until the demand 
decreased, or, until a sufficient number of men devoted 
themselves to fishing, to furnish enough to reduce it to 
its mean exchangeable value. Thus, the greater the 
demand, the greater the exchangeable value. 

4. Suppose, that, while the labor of taking fish con- 
tinued as before, the number of purchasers was from 
any cause diminished, so that, while there was fish 
enough caught to supply every person with five pounds, 
only half the population wanted any. In this case, as a 
large residue would, at the close of every day, be left on 
the fisherman's hands, there would be a competition 
among the sellers ; and each one would be desirous of 
disposing of his stock at a diminished price, rather than 
lose it altogether. Hence, he would offer to exchange 
it for a less amount of venison than before ; that is, the 
exchangeable value of fish would fall. It would remain 
at this point, until either the demand arose to its natural 
rate ; or a sufficient number of persons turned their at- 
tention to some other occupation, to reduce the supply 
to a level with the demand. That is, the supply being 
the same, the less the demand, the less the exchangeable 
value. 

It is the operation of these principles that keeps the 
supply of any article throughout the world always equal 
to the demand ; and, it is surprising to observe, with 
what accuracy this effect is produced. In the largest 
cities, there is always just enough butcher's meat and 
vegetables, and clothing, to supply the wants of the in- 
habitants, and no more. The moment the price of an 
article falls below cost, it ceases to be produced, until 
the price rises. As soon as it rises above ordinary 
profit, capital and labor are directed to it, and it is pro- 
duced in sufficient quantity to meet the unusual demand. 
Thus, also, we see why the high price of any article is 
commonly followed by a low price of the same article, 
and the contrary. When the price of any article is 



OF EXCHANGEABLE VALUE. 23 

low, men leave off this kind of production in too great 
numbers, and hence follows a comparative scarcity of 
the product which they furnish. When the price is 
high, men rush, in too great numbers, into this sort of 
production, and hence arises a temporary glut, and a 
depreciation of its exchangeable value. 

Again : it will be seen that this variation in the ex- 
changeable value of any article, is dependent greatly on 
its perishableness. An article which is not liable to be 
destroyed by keeping, will neither fall so rapidly, nor so 
low, by either a diminution of demand, or an increase 
of supply, as one which is, in its nature, rapidly perish- 
able. Thus, iron may be kept for years, without decay ; 
and hence, its exchangeable value cannot greatly vary, 
in consequence of increase of supply or decrease of de- 
mand : that is, it is an article not liable to great or sud- 
den fluctuation. On the contrary, fish, fruits, and ar- 
ticles of this nature, very often, in the course of a few 
days, vary one or two hundred per cent. 

Another source of variation in the exchangeable value 
of products, is the time necessary for their production. 
When any amount of a commodity may be quickly pro- 
duced, its rise of price will not keep pace with the in- 
creased demand ; because, every one will know that, by 
waiting, he can be provided with it at a reasonable price. 
Thus, a small rise of price in a manufactured article, 
when the material is abundant, will cause the quantity 
produced to be greatly increased ; hence, the rise is 
never excessive. But when a long time is necessary 
for the production of an article, and it is an article of 
prime necessity, the rise of price is frequently great. 

And again : It will be seen, that, so far as the seller 
and the buyer are concerned, these variations balance 
each other. When products rise on the merchant's 
hands, he charges an additional price ; when they fall, 
he is obliged, frequently, to sell at a reduced profit, or 
even to sell below cost. The gain, in one case, makes 
up for the loss in the other. Hence, as no one sympa- 
thizes with the merchant, when he sells at a loss, no one 
should complain, when he sells, for a short time, at more 
than an ordinary gain. 



24 OF EXCHANGEABLE VALUE. 

If, now, we sum up what has been said, we shall come 
to the following general conclusions : 

1. Cost; that is, labor bestowed, is the foundation 
of exchangeable value, and from this, it can never, for 
long periods, materially vary : that is, an article can al- 
ways be had for what it costs to produce it ; including 
in this, the ordinary profit to the producer. Notwith- 
standing this, there will, however, arise various fluctua- 
tions, depending upon the following circumstances : 

Other things, then, being equal — 

2. The greater the supply, the less the exchangeable 
value. 

3. The less the supply, the greater the exchange- 
able value. 

4. The greater the demand, the greater the ex- 
changeable value. 

5. The less the demand, the less the exchangeable 
value. 

6. And, in general, cost being fixed, exchangeable 
value is inversely as the supply, and directly as the de- 
mand. 

7. Or, still more generally, at any particular time, 
exchangeable value will be as the cost, plus the effect 
produced by the variation in supply and demand. 

Hence, wealth consists of all objects which have an 
exchangeable value. 

Exchangeable value is slightly distinguishable from 
price. The first, is the power which any object pos- 
sesses of procuring for us any object whatever. The 
second, price, is the power that it has to procure for us 
one particular object; that is, money. 

Of Production. From what has been said, it is easy 
lo explain the nature of Production. It is the act by 
which we confer a particular value upon any object 
whatever, or by which we give to any object its adapt- 
edness to gratify desire. We can neither create nor 
annihilate any thing. All that we can do, is, to modify 
what already exists. When we so modify any thing, 
that it is capable of gratifying a desire which before it 
was not capable of gratifying, our so doing is called pro- 
duction 



OF PRODUCE EXCHANGE. 25 

The modifications which objects need, in order to 
render them capable of gratifying desire, are various. 
Sometimes the elements of the substance, sometimes its 
form, and sometimes its place, require be to changed. 
Whenever human industry accomplishes any of these 
results, it is called production ; the person who exerts 
this agency is called a producer ; and the substance 
itself, on which this agency is exerted, is called a prod- 
uct. 

In some cases, we find the substance, as, for instance, 
ore in the mine, or stone in the quarry, in its natural 
state ; in others, we receive it from those who have im- 
parted to it one value, and we add to it another. The 
material which, in either case, we obtain for the purpose 
of combining it with our own industry, and forming it 
into a product, is called capital ; and, after the labor has 
been exerted, and the value created, it is called a prod- 
uct. Thus, the same article may be product to- one, 
and capital to another. Leather is the product of the 
currier, and the capital of the shoemaker. 

The term capital is not merely applied to the material 
on which industry is to be exerted, but also to all the 
instruments by which human industry is assisted ; as 
well as to whatever is necessary to the support of that 
industry. 

Of Exchange. I have said, above, that the mode of 
every man's industry is decided by his individual tastes 
and circumstances. It is commonly, however, confined 
to the creation of one kind of product, inasmuch as it 
is thus vastly more available. His desires, on the other 
hand, are as innumerable as the objects created to gratify 
them. He creates but one value and he wants a thou- 
sand. Hence, he can be gratified by means of no less 
than nine hundred and ninety-nine exchanges. He thus 
parts with various portions of the value which he has 
created, for the sake of obtaining the values which others 
have created. Hence the necessity of universal and 
ceaseless exchange. Hence also the reason why so 
large a portion of mankind devote themselves to the 
business of effecting exchanges. Those who do so, are 
3 



26 DISTRIBUTION CONSUMPTION. 

called merchants. Those who are employed in the 
transportation of wares or merchandise by sea or by 
land, are also engaged in effecting the same object. 

Of Distribution. In even the very first stages of 
society, it is found that the productive result of human 
power is greatly increased by union of effort and division 
of labor. Ten men, laboring together, can accomplish 
much more than ten men laboring separately. Specially 
is this the case where the various parts of a process are 
divided, and each one performs that part for which he is 
best adapted. And, as capital accumulates, it is com- 
monly the case, that one who owns the capital, unites in 
production with another or others, who perform the labor. 
When the product is realized, and the gains are to be 
divided, some equitable law is to be adopted, in the dis- 
tribution. Different laborers are entitled to dissimilar 
wages : and there are just proportions to be observed 
between the wages of labor and the wages of capital. 
The principles of this adjustment are treated of, by 
Political Economists, under the head of Distribution. 

Of Consumption. Suppose, now, the value to be 
created, and brought within the reach of him who desires 
it ; he uses it, and, in the very act of use, its value is 
destroyed. We exchange labor, or money, or wheat, 
for fuel ; we use the fuel in our fire places, and its value 
is destroyed. We purchase bread ; we eat it, and its 
value ceases forever. A baker purchases flour, and 
makes it into bread ; the flour ceases to be flour : its 
value, in this respect, is gone forever. This act, by 
which we annihilate any particular value, is called con- 
sumption. It is exactly the opposite to production. 
Sometimes the utility is destroyed, with no other result 
than merely the gratification of desire. Such is the case 
with fire-works, shows, and amusements of almost every 
sort. At other times, the value or utility is destroyed ; 
but it re-appears, in another and much more valuable 
form. Thus, a side of sole leather is cut up into soles, for 
shoes : its value, as a side of sole leather, is destroyed 
forever ; but its value re-appears, in another form, and 
with an increased exchangeable value. The food which 



DIVISION OF SUBJECT. 27 

we eat, disappears; but its value re-appears, in re-animated 
health and vigor, by which we are prepared for subse- 
quent labor. The former is termed unproductive, the 
latter, productive consumption. 

The whole subject of Political Economy, may be 
therefore divided into four parts. 

The First Part treats of Production, or the laws 
which govern the application of labor to capital in the 
creation of value. 

The Second, or Exchange, treats of the principles 
which govern men, when they wish, by means of their 
own labor, to avail themselves of the labor of others. 

The Third, or Distribution, treats of the laws by 
which those who have united in the creation of a prod- 
uct, receive, respectively, their portion of the result. 

The Fourth, or Consumption, treats of the laws 
which should govern us in the destruction of value. 

Each of these subjects will be treated of, in the above 
order, in the following work. 



29 



BOOK FIRST. 



PRODUCTION. 

It is obvious that when man was first created, there 
existed nothing but this earth, with its various substances, 
their qualities and relations ; and man, with his various 
physical, intellectual, and moral powers. The difference 
between the present state of man and of the universe 
around him, and the original state, consists in this : that 
the qualities and relations of things have now been dis- 
covered, and rendered available to the service of man ; 
and the intellect of man has been cultivated, and his 
skill improved, so that he is able, more successfully, to 
avail himself of these qualities and relations. And it is 
also obvious, that this change in the external world has 
been produced by the physical and intellectual faculties 
of man ; that is, by human industry. The whole wealth 
of the world has been created by the union of human 
industry with the materials which God had originally 
spread around us. Hence, all that is necessary to the 
creation of wealth, is capital and industry. But, it is 
also obvious, that the application of industry to the ma- 
terials around us, that is, to capital, has not been at all 
times either equally strenuous, or equally successful. 
There must, therefore, exist some rules, by which this 
application of industry to capital is governed, and some 
conditions under which it is more successfully exerted, 
than under others. 

The subject of Production is, therefore, naturally di- 
vided into three parts. 1st. Capital. 2d. Industry. 
3d. The principles by which the application of industry 
to capital is governed. 
3* 



30 



CHAPTER FIRST. 



OF CAPITAL. 



First. The nature of Capital. The word capital 
is used in two senses. 

When used in relation to product, it means any sub- 
stance on which industry is to be exerted. After that 
industry has been exerted, it then becomes product. 
Thus, leather is the capital of the shoemaker, and shoes 
are his product. 

When used in relation to industry, however, it has a 
much wider signification. It then signifies the material 
on which industry is about to confer value, that on which 
it has conferred value, and the instruments which are 
used for the conferring of value, as well as the means 
of sustenance, by which the being is supported whilst he 
is engaged in performing the operation. The capital of 
an individual, if it be examined, will be found to be 
composed of all these. Thus, also, the capital of a 
nation is composed of raw material, of articles ready to 
be consumed, of buildings, ships, manufactories, and 
also of the various substances, by which human life is 
prolonged and rendered desirable. 

Second. The forms of Capital. Hence it must 
be seen that the forms of capital must be as various as 
the various employments of man. 

1. The Farmer possesses seed, manure, breeding 
animals, &c. 

The Manufacturer possesses cotton, wool, flax, iron, 
leather, wood, and, in general, all the material on which, 
according to his particular calling, he desires to exert 
his industry. 

The Merchant possesses sugar, tea, coffee, iron, &c, 
or the various substances to which, by transportation, he 
has added, or to which he intends to add, value. 



CHANGES OF CAPITAL. 31 

2. But, in order to effect this intended creation of 
value, it is found that intermediate agents must, in all 
these cases, be employed. A farmer could not reap 
with his fingers, nor a miner dig with his hands, nor a 
manufacturer labor without tools. All these instruments, 
the use of which is necessary to the creation of value, 
are, therefore, also termed capital. 

Thus, the ploughs, harrows, spades, carts, and work- 
ing animals of the farmer, are a part of his capital. To 
the same class also, perhaps, belongs his land. 

The axes, planes, hammers, of the mechanic, and the 
buildings and machinery of the manufacturer, are theii 
capital. 

Under this division of capital may also be included 
the ship of the merchant, the wagon of the teamster, 
and the railroad and locomotive of the proprietor. 

3. But, besides all this, these several persons must 
be fed and clothed, whilst they are exerting the indus- 
try by which value is given to these various products. 
Hence, under the head of Capital, must be comprehended 
all the various kinds of food, the clothing, and houses, 
which are necessary, in order to give sustenance to a 
human being. These are generally the same, in all 
kinds of industry. 

4. And, lastly, every individual, in each of these 
departments of human industry, will retain some portion 
of the product which he has created, but which he is 
ready to part with for something else. The farmer has 
grain, which he has raised ; the manufacturer, cloth, 
which he has fabricated ; the merchant, commodities, 
which he has imported or bought for sale. These form 
another item of capital. 

Third. Of the changes wJuch Capital undergoes. 
From what has been already said, it is evident, that 
capital derives its value from labor, and that the effect 
of labor exerted, is to produce some change in it. 
Hence, capital, in every industrious country, must be 
always undergoing changes ; and hence, also, it fre- 
quently re-appears, in forms very different from those in 
which it at first existed. The form, however, is of no 



32 CHANGES OF CAPITAL. 

consequence, if a superior value be the result. Political 
Economy, unmindful of the form, looks only at an aug- 
mentation, either of the amount, or of the degree of 
value. 

1. The material undergoes changes. 

The seed and manures of the farmer are changed 
into vegetables, and these again into the grain of the 
hai'vest. 

The cotton and wool of the manufacturer are changed 
into the fabrics which he produces. The wood and 
nails of the carpenter are changed into houses. 

The commodities of the merchant undergo changes. 
He exports cotton, rice, wheat, or manufactures ; and 
imports calicoes, silks, wine, hardware, &c. 

2. The instruments, or machinery, employed by 
these several classes of persons, undergo changes. 
These several instruments, in the course of production, 
are gradually destroyed, or consumed. The plough and 
cart, and animals of the farmer, the tools of the me- 
chanic, the machinery of the manufacturer, and the ships 
and vehicles of the merchant, are worn out and rendered 
worthless. But if they have been profitably used, they 
have re-appeared, in the increased value, which they 
have conferred upon the various objects upon which they 
have been employed. 

3. The various kinds of food, clothing, and shelter, 
necessary for the existence and comfort of the human 
being, are also changed. They are consumed, from 
time to time, and their value re-appears, in that new 
vigor imparted to his body and mind, which forms a 
fresh capital, to be employed again in the work of pro- 
duction. 

4. And lastly : The mature product of every laborer 
is constantly changing. As soon as he has created a 
product, he is anxious to dispose of it to some one else, 
that he may invest its increased value in some other ma- 
terial which he may again, with increased advantage, 
unite with industry. As soon as the farmer has raised 
grain or fat cattle, he wishes to dispose of them, that he 
may invest their value again in seed, or manure, or agri- 



INCREASE OP CAPITAL. 33 

cultural improvements. As soon as the manufacturer 
has finished his fabric, he exchanges it for the means of 
subsistence, materials, or machinery ; and so of the 
merchant, and of every other laborer. 

We see, then, that capital is undergoing perpetual 
changes, and that the course of these changes is con- 
stantly from a state of less, to a state of greater value ; 
that is, from a state more remotely adapted to the grati- 
fication of human desire, to a state less remotely adapted 
to it ; and that so soon as it has become precisely 
adapted to this gratification, its change ceases, and it is 
consumed in some mode or other. And if it be profit- 
ably consumed it again re-appears in some form adapted 
to create a further increase of the means of enjoyment. 
And hence we see, that, that country is the most pros- 
perous which is the most rapidly accumulating, by the 
results of its labor, the greatest amount of these ultimate 
products, in proportion to the number of its inhabitants. 
The greater the share of these products which falls to 
the lot of each individual, the greater are the means of 
physical happiness in his possession. 

Fourth. The increase of Capital. In all these 
changes which we have considered, it is always to be 
remarked, that there is, in the very act of change, a 
destruction of value. Pie who changes iron into steel, 
consumes the iron, destroys that particular value and 
creates another in its place. He who sows wheat, de- 
stroys the value of that wheat, for food ; and he who 
spins cotton, destroys the value of cotton wool as cotton 
wool. That is, neither of these substances can ever be 
used again for the purposes to which they were before 
adapted. If, however, the industry of the laborer have 
been skilfully directed, the product will have acquired 
an exchangeable value sufficient to replace the original 
material in additional quantity, and also to repay him for 
his labor, and pay the interest of his capital. The 
amount of difference between the exchangeable value of 
his original material, together with his labor, and the ex- 
changeable value of his product, is his profit. The 
annual amount of these profits, is his annual gross rev- 



34 INCREASE OF CAPITAL. 

enue. The annual amount of these profits in a nation, 
is the gross national revenue. 

It is obvious, that it matters not in what form capital 
re-appears, if it only re-appear ina form bearing a great- 
er exchangeable value. The smith exchanges gold or 
silver for coal ; he burns up his coal, and nothing is left 
but ashes. But it has produced an invisible substance, 
called caloric, by means of which he has been able to 
give such an increased value to iron, as will not only re- 
place his gold and silver, but also the iron itself, and will 
also pay him for his labor. The farmer exchanges his 
gold or silver for manure, but this manure will so increase 
his harvest, that he will be able to replace his gold and 
silver, and also be abundantly repaid for his labor. The 
principle is the same, in all cases of change of capital. 
It matters not into what we change our capital, nor how 
valuable the substance may be that is exchanged, if we 
only receive, in return, a greater amount of exchange- 
able value, or that which will procure for us a greater 
amount of objects of desire. 

We see, hence, in what manner nations and individu- 
als grow rich. It is by uniting the industry of this year 
to the capital of last year, and by this process, creating 
an augmentation of' capital. This augmentation will be 
either greater or less, in proportion as our industry has 
been successful in giving additional value to that value 
which previously existed. If we destroy a value, and 
produce another only equal to it, we lose our labor. If 
we destroy a value, and re-produce nothing, we lose 
both labor and capital. It is only as the value created 
is superior to the value of labor and capital consumed, 
that we are enriched. Hence we see, that wealth is 
acquired by small, but oft repeated accumulations. The 
gross amount of these accumulations will be decided by 
our skill and industry. But, as from this amount our 
various expenditures must be subtracted, our nett reve- 
nue will depend not only on our skill and industry, but 
also on our frugality. Though a man earn much, 
yet, if he spend all, he will grow no richer. Hence, 
industry and frugality are the great sources of wealth. 



OF PRODUCTIVE AND UNPRODUCTIVE CAPITAL. 35 

Nor is this the less true of nations. Hence it is, that 
wars, unnecessarily expensive governments, or high tax- 
es for whatever purpose, may keep the most enterprising 
and industrious nation always poor. 

Fifth. Of Productive and Unproductive Capital. 

Productive capital is that, which, being in any man- 
ner united with industry, is in the process of augmenta- 
tion. Unproductive capital is that, which, not being 
united with industry, remains, at the end of the year, 
just the same as it was at the beginning. Money at 
interest, capital undergoing the various transformations 
effected by industry, tilled land, and manufactories in 
operation, are productive capital. Money lying in cof- 
fers, materials "unsaleable, manufactories unoccupied, and 
land lying waste, are unproductive capital. 

When capital is unproductive, it may be considered 
as losing for us, annually, its ordinary rate of irrterest ; 
because it must have been purchased with that which 
would have yielded that interest. Hence it is, that 
every sound economist is anxious to have the whole of 
his capital productively invested. He who acts other- 
wise, is ignorant of the principles of production, indo- 
lent, or slovenly. The farmer who allows a heap of 
manure to lie in his farm yard for a year, instead of 
spreading it on his land ; the merchant who allows his 
ships to lie idle, or his goods to be scattered, unsold, 
over several warehouses ; or the manufacturer who owns 
twice as much machinery as he is able to employ, are 
annually losing all the accumulation which this capital, 
properly invested, would produce. And still more, as 
we have seen that all gains arise from small and suc- 
cessive accumulations, and as almost every product is 
liable to waste, it is manifest that habitual negligence of 
this sort must greatly diminish, if it do not entirely 
consume, all the nett revenue of an establishment. The 
effort of every man should be, to unite every fraction of 
his capital with industry, and to keep it so united, con- 
tinually. Any gain, even the smallest, is better than no 
gain at all. 

From what has been said, it is evident that the pro- 



36 OF FIXED AND CIRCULATING CAPITAL. 

cess of accumulation, in all branches of production, is 
the same. It will also appear, that where capital is free, 
that is, where there are no restrictions upon the use of 
it, there can be no great permanent difference in the 
rate of accumulation, between the different modes in 
which it is employed. If the profits of one kind of 
business are above the average rate, other capital will 
flow into that channel. If the profit in any branch of 
production be below the ordinary rate, capital will be 
withdrawn from it. If commerce be unusually lucrative, 
men will leave other pursuits, and devote themselves to 
commerce, until, by competition, they reduce the profits 
to the ordinary rate. If commerce be depressed, men 
will leave it, until, by the reduction of the supply of 
commercial facilities, the rate of profit is increased. 
Rates of profit cannot be rendered permanently unequal 
in any* other manner, than by oppressive legislation. 
The differences in profit, in the various departments of 
industry, are, therefore, more apparent than real. When 
profit is sure, it is of course less than when it is uncer- 
tain. But, how much soever individual cases may differ, 
it will be found that the average is, for long periods, very 
nearly equal. * 

• Sixth. Of Fixed and Circulating Capital. The 
capital from which the owner derives profit only by 
exchanging its form or place, is circulating capital. 
Thus, the wares of the merchant, the products of the 
manufacturer, the harvest of the farmer, are circu- 
lating capital. On the other hand, the instruments 
which each of these producers uses, in performing his 
various operations, are fixed capital. Such are the 
ships and warehouses of the one, the machines and 
buildings of the other, and the tools and land of the 
third. 

Circulating capital is, in general, that which is already 
prepared for the gratification of human desire, or that 
which is in a course of preparation for this state. Fixed 
capital, in general, consists of the instruments, or fix- 
tures, which, in some form or other, assist us in accom- 
plishing this result. Tools, machinery, houses, ships, 



OF FIXED AND CIRCULATING CAPITAL. 37 

roads, canals, and improvements on farms, &c, are 
fixed capital. Circulating capital is in general rapidly- 
consumed. It is commonly an annual product, and sub- 
ject to an annual consumption. Fixed capital is not an 
annual product, and may last for a year, a lifetime, or 
indefinitely. It is, however, still liable to gradual decay, 
which decay must be replaced, or else the possessor 
would find himself growing poorer, inasmuch as these 
tools and machinery are the means by which his labor 
is rendered productive. 

The amount of fixed capital employed in some 
branches of industry, is much greater than that in others. 
Some mechanical trades require no more fixed capital 
than a cheap set of tools. Others, as large manufacturing 
establishments, require a large fixed investment. In pro- 
portion to the amount which must be thus employed, will 
be the amount of accumulated property necessary to be 
possessed by him who wishes to employ himself in that 
particular department of industry. Sometimes, by far 
the greater part of the investment is fixed capital, and it 
is aiso very great in amount. In this case, it is fre- 
quently apportioned among individuals, who each sub- 
scribe and pay a part of the cost. Such is the case 
with railroads, canals, and works of public improvement 
generally. 

There is an obvious tendency in the nature of things, 
to convert circulating, into fixed capital. As circulating 
capital is annually consumed, it must be annually re- 
placed, or mankind, after the first year, would all perish. 
It is replaced by the annual productions of the earth, 
either vegetable, animal, or mineral. But, if the indus- 
try of man has been successfully exerted, the amount of 
annual production will be sufficient, not only to supply 
the ordinary wants of the producers, and to repair the 
waste and wear of fixed capital, but also to leave a sur- 
plus unappropriated. Now, as this kind of capital is 
annual, and as it is also perishable, if it be not used in 
some way, this surplus must be a total loss. If it be 
appropriated to the multiplication of annual capital, it 
will only increase that surplus, which is already too 
4 



38 OF FIXED AND CIRCULATING CAPITAL. 

great. Hence, it can be usefully employed only in the 
creation of fixed capital. To accomplish this result, it 
is offered in the form of wages, to mechanics, artisans, 
and those persons who employ themselves in the manu- 
facture of those articles, in which fixed capital consists. 
Hence, .the wages of this class of persons will rise, and 
a portion of them will be drawn from the production of 
circulating capital. This might at first be supposed to 
diminish the amount of circulating capital. Such would 
be the result, were it not for the fact, that the very ob- 
ject of fixed capital, is to enable us to create circulating 
capital, with a less amount of labor. A society, in 
which a part of the members are devoted to the making 
of useful machines, will create a greater amount of an- 
nual products, than one in which all are devoted exclu- 
sively to the creation of annual products. Thus, in a 
short time, the annual surplus is greater than before, and 
a greater number of persons is employed in creating 
fixed capital, and that kind of fixed capital, which in- 
volves, in its creation, a greater amount of expense. 
It is thus that a society, age after age, grows rich, and 
each successive race of men leaves the world better 
provided with the means of production, than it found it. 
This may all be illustrated, by a few very familiar in- 
stances. A savage, who obtains peltry by his bow and 
arrows, having provided for the food and clothing of his 
family, will, if he be industrious, possess a surplus which 
must now' be useless to him. He would naturally ex- 
change his surplus for a rifle ; a kind of fixed capital, 
by means of which, his circulating capital would be 
greatly increased. This increase of capital would en- 
able him, besides procuring better clothes and more nu- 
merous conveniences, to add to his fixed capital by pur- 
chasing a horse, or a plough, or by erecting a house. 
These, in their turn, would augment his circulating capi- 
tal ; and thus, with every year, his fixed and circulating 
capital would steadily increase. Hence, very soon, 
there would arise a demand for the services of men who 
employed themselves in creating fixed, instead of circu- 
lating capital. That is, mechanical arts would be prac- 



OF FIXED AND CIRCULATING CAPITAL. b9 

tised ; and the artisans would be, as we find that in such 
a state of society they always are, exorbitantly paid for 
their labor. 

Again : Suppose a farmer to enter upon new and un- 
titled land. His first care is to produce the necessities 
of life, for himself and his family. When this is ac- 
complished, he appropriates a part of his labor to the 
creation of fixed, instead of annual capital : that is, he 
erects fences, purchases with his produce carts and ani- 
mal, builds barns and outhouses, and thus renders his 
farm a much more productive instrument than before. 
With his increasing surplus he purchases additional land, 
if he needs it, and brings it all into such a state of culti- 
vation as he thinks desirable. By all these means, his 
annual surplus is rendered greater, and he is enabled to 
extend the amount of his fixed capital, by building a 
better house, purchasing better ploughs, harrows, carts, 
and various machines by which his future labor will be 
rendered more productive. But we see that this could 
not be done by the farmers of a neighborhood, unless 
some portion of them abandoned farming, -and devoted 
themselves to the creation of fixed capital. There 
would, therefore, arise a great demand for mechanical 
labor. And as there would hence arise the necessity 
for a great number of exchanges, some portion of the 
society must devote themselves to effecting them ; that 
is, must become merchants. In this manner, circulating 
capital first gives rise to fixed capital, and fixed capital 
increases again the amount of circulating capital ; and 
thus they go on, year after year, mutually augmenting 
each other. 

Thus also the merchant, whose business it is to aug- 
ment the exchangeable value of a given amount of cir- 
culating capital by transportation and exchange, pro- 
duces, by his operations, an annual surplus. This he 
adds to his former capital, for a while, but soon pur- 
chases fixed capital, such as ships, &c, to facilitate his 
operations. When he has enough of these, and as large 
an amount of circulating capital as he wishes to employ, 
he then begins to invest his surplus either in some per- 



40 OF FIXED AND CIRCULATING CAPITAL. 

manenl works of public improvement, as bridges, roads, 
canals, or in something, which, besides facilitating the 
productiveness of the society, will also yield him a rev- 
enue, or else he employs it in manufactures, according 
to the condition of the country, and its natural demands 
and facilities. 

From what has been remarked above, we may easily 
see the natural course which a nation takes, in the pro- 
gressive accumulation of wealth. Its first productions 
are, circulating, or annual capital ; the products of the 
field, of the forest, or of the ocean. Next follow im- 
provement in permanent conveniences, and the construc- 
tion of instruments for agricultural production ; then the 
exchange of its own products for other circulating capi- 
tal, or for the annual necessaries of life ; and then the 
exchange for fixed capital of the most necessary kind. 
Thus, the Dutch, on their first settlement in this coun- 
try, used to import their bricks from Holland. Com- 
merce being thus commenced with an older country, the 
colonists soon engage in it themselves, and invest a large 
portion of their annual surplus in ships. Before manu- 
factures had commenced in this country, previously to 
the Revolution, the commerce of the colonies had be- 
come already extensive. All these changes prepare the 
way for the investment of capital in manufactures, which, 
in their proper and natural time, must be established ; 
and when that time arrives, they will be established, 
without the aid of legislative enactment, and according 
to the very laws by which accumulation is governed. 

From what has been remarked, we also see that the 
advantages which we enjoy over savage nations result, 
principally, from the possession of a greater amount of 
fixed capital ; or, in other words, the permanent results 
of pre-exerted industry. That advantage consists in 
this, that this capital, besides affording to its owners the 
ordinary rate of profit, enables men to produce at a 
much cheaper rate ; that is, at a less expense of labor. 
Thus, a cotton factory, besides affording a fair profit to 
the owner, enables him to do, by one hour's labor, what 
would otherwise require the labor of days or of weeks 



OF MONEY. 41 

By ail this difference, therefore, we have the advantage 
over savages, or over those who went before us. Hence, 
a nation, which does not possess the results of pre- 
exerted industry, must be poor, unless its natural ad- 
vantages enable it to avail itself of those of other 
countries.* 

Hence, we also see the reason why the traffic between 
savage and civilized nations is so greatly in favor of the 
latter. The latter are enabled to offer in barter that 
which is of' inestimable value to the savage, but which 
the civilized man can produce with a very small portion 
of labor. An axe would cost a savage the labor of 
weeks or of months, while a smith in New England 
would make it in a few hours. Hence, it is not wonder- 
ful that the one should be willing to give for it vastly 
more than it costs the other. And, on the other hand, 
the commodities of the savage are of very little value to 
him, but of high value to the mechanic or artisan. 
Hence, the gain to him also is great. An Indian who 
exchanges peltry, which is worth in New York fifty or 
one hundred dollars, for a rifle, powder, and bullets, has 
improved his condition, by means of the purchase, 
really more than the gunsmith, who has made so exor- 
bitant a profit. 

Seventh. Of Money. It will be observed that, 
thus far, I have not mentioned money as an item of cap- 
ital. Although this is not the place in which to treat of 
the functions of money, yet it may be proper here to 
add a single remark concerning it. 

Money forms but a very small part of the capital of 
any country. Every one may easily judge of this, from 
his own observation. How very small a portion of any 
one's possessions is in money. And if this be true of 
every individual separately, it must be true of all the in- 
dividuals collectively. 

* Or, in other words, as it is well expressed by Mr. Carey, in his 
late work on this subject; the quality as well as the quantity of labor, 
enters into the account, whenever we speak of the exchangeable 
value of the products which it has created. The quality of labor is 
always in proportion to the amount of pre-exerted industry with 
which it operates. 

4* 



42 OF MONEY. 

The sole use of money, is to facilitate exchanges. 
It is an instrument for the saving of labor, and for the 
performing of labor with greater accuracy. Of this, 
any one may convince himself in a moment, if he will 
imagine two cases, in the one of which he was obliged 
to make several exchanges without money, and the 
other in which he could make them with it. 

Money gains nothing by exchange, but rather loses in 
value, like every other machinery which is worn out 
while it accomplishes its object. Hence, it belongs to 
the class of fixed capital. It is subject to slow wear, 
which must be replaced out of the circulating capital of 
the country. 

And, hence, as any country may have a greater 
amount of any particular kind of fixed capital than it 
needs, as, for instance, of any particular kind of ma- 
chinery ; and as, when this is the case, it sends it 
abroad, or in other words, makes it an article of export, 
or changes it into circulating capital, so is it with money. 
If a country has more money than is sufficient to ac- 
complish its exchanges, it sends it abroad, and receives 
back something that it needs more. Such is, perma- 
nently, the case in mining countries ; and such is, at 
times, the condition of almost every commercial nation. 
* » 



43 



CHAPTER SECOND. 

OF INDUSTRY. 

Having, in the previous chapter, explained the nature 
and changes of Capital, we now proceed to treat of 
Industry. In doing this, we shall consider : 1st. The 
different objects of Human Industry ; 2d. The forms 
of Human Industry ; and, 3d. The modes by which 
the productive power of Human Industry may be in- 
creased. 

PART I. 

THE OBJECTS AND FORMS OF HUMAN INDUSTRY. 



SECTION I. 

THE DIFFERENT OBJECTS OF HUMAN INDUSTRY. 

It has been seen, in the previous chapter, that the in- 
crease of capital ; that is, the means of physical happi- 
ness to man, can be effected only by producing change, 
of some kind, in capital. But it is evident that this 
change cannot be produced without labor, since no valu- 
able change is spontaneous. Hence, the great object 
of human industry is, to produce some valuable change 
in capital. 

Now, the changes, which may be produced in the 
substances of nature, may all be reduced to three ; 
change in the elementary form, change in the aggregate 
form, and change in place. To effect one or the other 
of these, all valuable human labor is directed. 

1. Man may change the elementary form of matter. 
The farmer, by means of seed, manure, and cultivation, 



44 THE OBJECTS OF HUMAN INDUSTRY. 

aided by the agencies of the sun and the earth, of rain, 
and the atmosphere, transforms the elementary forms of 
carbon, gases, and water, into wheat. The chemist 
changes the elementary forms of acids and alkalies into 
salts. The dyer changes the elementary forms of iron 
and tannin into coloring matter ; and the case is the 
same with the various other forms of human occupa- 
tion. 

2. Man may change the aggregate form of matter. 
The cabinet-maker changes the form of a board into 
that of a desk or a table ; the smith, a piece of iron 
into a horse-shoe or a nail ; the mason changes a pile of 
bricks and mortar into a wall ; the cotton spinner, a bale 
of cotton into thread ; the weaver, this thread into cloth. 
And, in general, the labor of mechanics and manufac- 
turers is employed in effecting changes in the aggregate 
forms of matter. 

3. Man may change the place of matter. Thus, 
the shipmaster transports a cargo of cotton from New 
York to Liverpool, and brings back a cargo of cotton 
goods, of crockery, or of hardware. The teamster re- 
ceives a wagon load of merchandise in one town, and 
transports it to another. The owner of a canal boat 
receives manufactured goods in Albany, transports them 
to Buffalo, and brings back to Albany, in return, a 
freight of agricultural produce. The agent of a railroad 
receives a hundred boxes of merchandise in Manchester, 
and transports them to Liverpool. And thus, also, a 
large number of the inhabitants of every populous town 
derive their subsistence, and frequently grow rich, sim- 
ply by transporting wares and merchandise from one 
part of the town to another. 

These divisions, in general, correspond with the agri- 
cultural, mechanical, and commercial departments of hu- 
man industry. I have adopted a different terminology, 
because it seems to me to form a more generic and bet- 
ter limited division, and one more conformable to the 
facts in the case. 

1. Concerning these divisions, it is proper to remark, 
that, though these are the various objects of human in- 



THE OBJECTS OF HUMAN INDUSTRY. 45 

dustry, yet it frequently happens that, he who labors in 
one, is also obliged to labor in one or both of the others. 
Thus, the farmer who raises a crop, is obliged to trans- 
port the seed to the field, and frequently to transport his 
harvest to market. The cabinet-maker who manufac- 
tures a table, may transport his materials from the lumber 
yard. The engineer, on the railroad, is obliged to 
change the elementary form of wood, in order to produce 
the caloric, necessary to move his locomotive. We 
designate the class of laborers to which a man belongs, 
by the ultimate object which he has in view, in exercis- 
ing his profession. 

2. Each one of these forms of industry is equally 
important in conferring intrinsic value upon substances ; 
that is, in giving them capacity to gratify human desire. 
Thus we see that the ore in the mine has no power to 
gratify desire, until it is made into iron or steel. The 
steel is valueless for the purpose of cutting, until it is 
transformed into a knife, an axe, or some cutting instru- 
ment ; and, if I want to make a pen in New York, a 
knife is utterly valueless to me for this purpose, while it 
remains in Sheffield or Liverpool. Unless these several 
values are all conferred upon it, it would be of no ser- 
vice to me. Hence, in purchasing a knife, I pay for 
them all, and as willingly for one as the other. 

3. Hence we see how incorrect is the notion some- 
Umes advanced, that all wealth is the production of one 
or of two, and not of all these forms of human industry. 
All these changes must be effected in almost every arti- 
cle which we con§ume, and if either of them were to be- 
suspended, our desires would not be gratified, and the 
other two must also be discontinued. He who trans- 
ports flour, performs an act of as essential importance 
to the sustentation of the human race, as he who raises 
wheat. He who brings a knife from Liverpool to me, 
performs a labor as important to me, as he who manu- 
factures the knife ; for, if it were three thousand miles 
off, it might, for all the purposes for which I want it, as 
well not be in existence. And yet more, if one of these 
forms of labor should cease, the others must soon cease 



46 THE OBJECTS OF HUMAN INDUSTRY. 

with it. Of what value would wheat or wool be to the 
farmer, if they could not be transported from his farm ? 
And again : what gain could be derived from either, 
if there were no means of grinding the one, or of manu- 
facturing the other ? Hence we see that all the forms 
of industry mutually support, and are supported by, each 
other ; and hence, also, we see that any jealousy be- 
tween different classes of producers, or any desire on 
the one part, to obtain special advantages over the other, 
are unwise, and, in the end, self-destructive. The fact 
is, that if left to themselves, they all nourish, and they 
all suffer together. Nor can either one be depressed, 
for any considerable period, without injuriously affecting 
both the others. 

These various forms of human industry enter, in 
different degrees, into the value of different articles of 
use. For instance, butchers' meat and green vegetables 
derive almost their whole value from the first kind of 
labor, as they require very little modification, and will 
bear but short transportation. On the contrary, salted 
provisions may derive a large portion of their value from 
change of place. Clothing, cutlery, and what are com- 
monly denominated manufactures, derive the greater 
portion of their value from change in the aggregate 
form. The original material constitutes, in general, but 
a small part of their price, and, not being of great bulk, 
their transportation is not very expensive. The steel 
that would make a pair of razors, and the cost of trans- 
porting them from Sheffield or Paris to New York, 
would form but a very small portion of their price. 
On the contrary, bulky articles, such as coal and iron, 
derive a very large portion of their cost from transpor- 
tation. Coal, that has scarcely any exchangeable value 
in the coal mines of Pennsylvania, is sold for eight or 
ten dollars a ton in Providence. And all the labor em- 
ployed upon it, is that which is necessary for breaking it 
in pieces, and removing it from its bed to the house of 
the consumer. 

As, however, the human race is scattered over the 
face of the globe, and as their wants in all latitudes are 



THE OBJECTS OF HUMAN INDUSTRY. 47 

so nearly the same, while no country affords facilities 
for supplying more than a very small number of these 
wants, it is evident that the labor employed in change of 
place must, in civilized countries, be most universal, and 
must enter essentially into the greatest number of com- 
modities. Of this every one will be convinced, who 
will take any article of dress, of furniture or of food, 
and consider the amount of transportation that has en- 
tered into its production ; and, specially, if he take into 
account the transportation which has entered into the 
formation of the instruments, by which it had been pro- 
duced. The same truth is also illustrated by the fact, 
that whole nations, with very small natural advantages, 
as Holland and Venice, have, in a short period, become 
immensely rich, merely by conferring change of place 
on the merchandise and productions used by other na- 
tions. Water communication, in the early stages of so- 
ciety, greatly diminishes the cost of transportation, and, 
of course, increases the facilities of exchange. It is on 
this account that the first settlements of nations are al- 
ways either on the shores of the ocean, or along the 
banks of navigable rivers. 

It may also be worthy of remark, that, thus far, in 
the progress of society, the ingenuity of man has been 
more successful in devising means for increasing the pro- 
ductiveness of labor in the second and third, than in the 
first kind of human industry. Improved agricultural 
utensils, a better knowledge of the nature of soils, and 
of the different kinds of gi*ain and edible vegetables, 
and of manures have added considerably to the quantity 
of product that can be raised by a given amount of la- 
bor. But this increase bears no sort of proportion to 
that effected by the use of the machinery in the case of 
the cotton manufacturer, and by the use of the locomo- 
tive and many other forces. It is, doubtless, wisely 
ordered that it should be so. Agricultural labor is the 
most healthy employment, and is attended by the fewest 
temptations. It has, therefore, seemed to be the will 
of the Creator that a large portion of the human race 
should always be thus employed, and that, whatever 



48 THE OBJECTS OF HUMAN INDUSTRY. 

effects may result from social improvement, the propor- 
tion of men required for tilling the earth should never be 
essentially diminished. It is also to be remarked, that 
division of labor, which so greatly increases the produc- 
tiveness of human industry in the other modes of pro- 
duction, can be applied but in a small degree to agri- 
culture. No man can devote himself exclusively to 
ploughing, sowing, or reaping ; because only a small 
part of the year can be employed in either of these oc- 
cupations. The farmer must, therefore, practise them 
all, at different times ; and, of course, every farmer 
must be able to perform not one, but all the several 
operations required in his trade. This forms another 
reason why the increase of productiveness of human 
industry, in this department of labor, has not kept pace 
with that which has been witnessed in manufactures and 
commerce. 



SECTION II. 

THE DIFFERENT FORMS OF HUMAN INDUSTRY. 

Industry is any form of human exertion employed in 
the creation of value. This, of course, includes exer- 
tion, both of body and of mind. 

The object of industry, as we have seen, is to pro- 
duce change of some sort $ since change is necessary, 
either to the creation or to the increase of intrinsic 
value, and is always necessary to the existence of ex- 
changeable value. 

We have also seen that all the changes which human 
industry can effect in matter, may be reduced to three, 
namely : Change in elementary form ; change in aggre- 
gate form ; and change in place. 

But when man puts forth exertion to effect change, it 
is not any change at random, but some specific change 
which he has directly in view. Were it otherwise, his 
labor would be worse than useless, and, like the effort 



THE FORMS OF HUMAN INDUSTRY. 49 

of a maniac or an idiot, would, in nine times out of ten, 
destroy, instead of creating value 

It is also evident, that the changes which can be ef- 
fected in matter, are not produced at random, but in 
obedience to certain laws. If we wish to kindle a fire, 
it is not any kind of effort that will do it, but effort ex- 
erted in obedience to the laws of combustion. If we 
wish to raise wheat, it is not every kind of labor that 
will do it, but labor exerted in obedience to the laws of 
vegetation. And so, in general, if we wish to effect 
either of the three kinds of change mentioned above, we 
must act in obedience to those laws of the Creator, to 
which this kind of change has been subjected. 

Again : Supposing the laws of nature, in respect to 
a particular change to be known, it is also necessary to 
know, the manner in which they may most successfully 
be applied to the accomplishment of a particular result. 
The laws of combustion and of gravitation may be known, 
and yet a very important effort of human ingenuity may 
be required, before we ascertain the best method of so 
applying them as to be able to construct a good fire- 
place. The expansive power of steam was known long 
before a steam engine was invented ; and still longer be- 
fore any application of it was devised by which it might 
be used for propelling vessels through the water. And 
still further, a man may understand the general laws of 
physiology, and yet be unable to apply them to the cure 
of diseases. A man may understand the general prin- 
ciples of jurisprudence, and yet not know how to avail 
himself of them, in such a manner as to procure either 
defence from injury, or redress of grievance. 

But suppose this also to be known : it still remains 
for us to put those means into operation, by which, in 
obedience to the laws of nature, a given result may be 
accomplished. He who understands the laws of com- 
bustion and gravitation, and the mode of their applica- 
tion, may now set himself to work, according to these 
laws, and build a chimney. He who understands the 
laws of hydrostatics, and the mode of their application, 
may now set himself to work to build a boat. It is, howev- 
5 



50 THE FORMS OF HUMAN INDUSTRY. 

er, true that there would still be required a certain degree 
of skill and dexterity, before he could perform either of 
these operations well ; although he now could perform 
them, in some way or other. This skill can be ac- 
quired only by practice ; and the power of acquiring it 
is, in general, very universally bestowed upon men. 

From what has been said, it is evident that the in- 
dustry of which man is capable, may assume three dif- 
ferent forms, namely : Industry of discovery or investi- 
gation ; Industry of application or invention ; and In- 
dustry of operation. 

1. Industry of Discover or Investigation. Under 
this class of laborers, are to be comprehended those 
who discover the laws of nature, and those who make 
them known to mankind, after they have been discov- 
ered. Newton labored in this department, when he 
discovered the laws of gravitation, optics, and of the 
motions of the heavenly bodies ; Franklin, when he dis- 
covered the laws of electricity ; and Sir Humphrey 
Davy, when he discovered the alkaline bases, and the 
laws of their combination. The labor of each of these 
men was also of the same kind, when they made known 
these laws to the public. The labor of those who are 
called philosophers, belongs to this class. 

2. Industry of Invention or Application. It is very 
rarely that a simple law can be of any use, without some 
adjustment by which we may avail ourselves of its ad- 
vantages. Hence, a very important department of hu- 
man industry is that which teaches us how to make the 
application of the principle, so as to accomplish a par- 
ticular purpose. Newton performed this labor when he 
invented the telescope ; Hadley, when, by means of the 
quadrant, he applied the laws of light to the measure- 
ment of angles ; Franklin, when he invented the con- 
ductor, or lightning rod ; Sir Humphrey Davy, when he 
invented the safety lamp ; and Fulton, when he invented 
that modification of the steam engine, by which vessels 
may be propelled through the water, 

Under this class, I think, may a)so be comprehended 
professional labor, generally. The business of the cler- 



THE FORMS OF HUMAN INDUSTRY. 51 

gyman is to teach us in what manner we may avail our- 
selves of the moral laws of the Creator. The lawyer 
teaches us how to avail ourselves of the laws of that 
civil society, of which we are the members. The phy- 
sician teaches us how to obey the physiological laics 
under which we are created, so that we may be relieved 
from sickness, or preserved in health. 

3. To the third class of human industry belong all 
those who put forth the physical effort necessary, in or- 
der to create the values desired. They are the laborers 
who produce those changes, either in elementary form, 
in aggregate form, or in place, of which we have al- 
ready spoken, and they compose by far the most numer- 
ous class of society. 

,It may here be remarked, that two of these forms of 
labor are frequently performed by the same person. 
For instance, he who discovers a law sometimes also 
teaches us how to apply it. Thus, as we have already 
shown, Sir Isaac Newton, Franklin, and Sir Humphrey 
Davy, were both discoverers and inventors ; that is, they 
performed both the first and second kinds of industry. 
Thus, the second and the third are also frequently 
united ; that is, the individual who labors at a particular 
operation, also invents some machine by which a partic- 
ular process in that operation is improved. Thus, Sir 
Richard Arkwright, a mechanic, invented the spinning 
machinery now in common use ; and, in general, many 
of our most important inventions have been made by op- 
erative laborers. And there can be no doubt that, if a 
knowledge of ihe laws of nature were more generally 
diffused throughout this class of society, the progress of 
invention would be inconceivably more rapid. I know 
of nothing which would tend so directly to the general 
improvement of the useful arts, as a wide diffusion of 
the knowledge of principles among those whose business 
it is to employ those principles in their daily avocations. 
Although I have arranged the several forms of human 
industry in the above order, I by no means assert that 
this is the order in which they actually arise among men. 
The reverse is, on the contrary, far more commonly the 



52 THE PRODUCTS OF HUMAN INDUSTRY. 

fact. Men commence by creating, at first, the simplest 
forms of value, and those absolutely necessary to their 
actual existence. Still, in order to create these values, 
with certainty and with regularity, they must very soon 
have discovered, by experiment, some rules by which 
the process must be conducted. Men would very soon 
discover that stones would not ignite, and that a fire 
could not be kindled in a pool of water. As they ad- 
vanced, by successive experiments, they invented tools, 
by which, without knowing why, they found themselves 
able to accomplish their purposes with less labor and 
with greater success. Thus, a man would construct a 
raft to transport himself and his property over a river, 
before he knew any thing of the laws of hydrostatics ; 
and he would employ a wedge, before he understood 
the doctrine of forces. The last labor required, is to 
ascertain the laws by which these changes are governed. 
As soon as this is done, a great improvement is at once 
effected in all the former inventions ; and new inven- 
tions arise, which otherwise would never have been sug- 
gested. Thus, a knowledge of the laws of combustion 
has greatly improved the construction of instruments for 
warming our houses. A knowledge of the laws of hy- 
drostatics has greatly improved the construction of ships. 
And a knowledge of the laws of steam has given birth 
to all the machinery connected with the steam engine. 
And, it seems not too much to hope for, that -the knowl- 
edge of the laws of nature will be yet so universally dif- 
fused, that invention shall almost cease to be the work 
of accident ; but, that, when an instrument is wanted, 
men will proceed to discover the law, and invent the 
application, just as Sir Humphrey Davy proceeded, 
when he was requested to invent the safety lamp. 

OP THE DIFFERENT PRODUCTS OF THE VARIOUS 
FORMS OF INDUSTRY. 

1. The product of operative industry, is a change of 
form or of place in matter, by which its intrinsic and 
exchangeable value is increased. As the exertion of 



THE PRODUCTS OF HUMAN INDUSTRY. 53 

this labor confers its value, it gives to the laborer a right 
either to the whole, or to an equitable part of the mat- 
ter on which it is exerted. This right is easily ascer- 
tained and enforced ; for the laborer may enforce it, by 
seizing either on the matter itself, or on such part of it 
as may be sufficient to satisfy his demand. 

2. The change, which is thus produced, could not be 
effected by a less amount of labor, than that which the 
laborer has exerted- If a man make a table with suit- 
able skill, such a table could not be made by any one 
else with a less degree of skill and a smaller amount of 
labor ; and hence, the cost of tables must, in the same 
place, and at the same time, be very much the same. 
Besides this, there is no power in tables to multiply 
themselves. Hence, the laborers in this or any other 
department, have a sort of monopoly of this kind of 
production, inasmuch as no one can produce it cheaper, 
and none but themselves can produce it as cheap. 

But all this is reversed, in the case of the first two 
kinds of labor. For, 

1. The product which the discoverer or inventor 
creates is immaterial. It is knowledge, or a change ef- 
fected, on mind, the immaterial part of man. By cre- 
ating this change, a man does not acquire a right to the 
whole, or to any part of the substance, in which the 
value resides. The substance cannot be appropriated, 
nor can it be divided ; and, were this possible, the la- 
borer could make no use of it. Nor is the change 
one which is cognizable by the senses of others, but 
only by the consciousness of the person in whom it 
is wrought. Hence, this marks a broad distinction be- 
tween this and the other forms of labor. 

2. Although the discovery of the laws by which the 
changes in matter are governed, may require the exer- 
cise of the most unusual talent, and may demand both 
protracted and most expensive labor ; yet these laws 
may be promulgated, after they are discovered, by men 
of the most ordinary talent. If a man discover a law 
and reveal it to his neighbor, that is, create this change 
in his mind, his neighbor may create the same product 



54 THE PRODUCTS OF HUMAN INDUSTRY. 

in an hour, in the minds of a thousand persons, and each 
one of these in the minds of a thousand more. And 
specially, by means of the press, this power is multi- 
plied indefinitely. There is therefore no ratio between 
the labor or skill necessary to create it, and that ne- 
cessary to promulgate it after it has been discovered. 
Hence, he who first creates knowledge, has no means of 
monopolizing it ; nor can the exchangeable value be sus- 
tained, by the consideration that no one could create it, 
afterwards, with less labor. Hence, as the supply of 
the product can at any moment be inimitably increased, 
it very soon ceases to have any exchangeable value. 

From these reasons it will be seen, that the ordinary 
rules of supply and demand, and cost and labor, do not 
enter into view, when we speak of intellectual products. 
They can therefore rarely be adjusted by any fixed rule. 
Nevertheless as immaterial products are of the greatest 
importance to the prosperity of a country, the Political 
Economist may point out the circumstances most favor- 
able to their production, and the rule by which those 
who produce them should be remunerated. The above 
considerations are suggested, in order to explain, why 
Political Economy, so commonly, treats almost exclu- 
sively of material products. 

It may, however, be remarked, that civil society ob- 
serving that immaterial products are necessary to the 
well being of a community, and that those who create 
them, are liable to remain altogether unpaid ; has fre- 
quently devised means by which some remuneration may 
be reaped from the exercise of this kind of industry. 
Such are the laws of copy, and of patent right. By 
the first of these, an author is allowed, for a limited 
time, the exclusive control over the publication of his 
work ; and by the other, the inventor is entitled to the 
exclusive control over the use of his invention. In this 
manner, both of these classes of laborers are enabled to 
derive some portion of benefit from their productions. 
Were it otherwise, all their reward would consist in 
whatever of consideration they might obtain in the com- 
munity, and in the gratification of benevolence from the 



THE PRODUCTS OF HUMAN INDUSTRY. 55 

consciousness of having improved the condition of their 
fellows. But, inasmuch as every other man, who is 
usefully employed, obtains these rewards also, and re- 
ceives pecuniary advantage in addition, there is no rea- 
son why the intellectual laborer should receive only the 
first, and be excluded altogether from the second. 

From what has been said, another difference between 
these two forms of product may be seen. The product 
of operative labor, being united with matter, and being 
limited in quantity and fixed in cost, may be exported 
to another country, and will command a correspondent 
amount of exchangeable value in the products of that 
country. Hence, a nation may grow rich, either by 
agriculture, manufactures, or commerce. But this is 
not the case with immaterial products. We cannot send 
abroad a given amount of knowledge, and bring back a 
correspondent amount of material products. The small- 
est amount of knowledge, is capable of such indefinite 
multiplication, that the demand may be instantly supplied. 
Hence, a society composed solely of philosophers, or 
inventors, or professional men, would never grow rich, 
but must, if it performed no other labor, of necessity 
starve. Laborers of this class add greatly to the value 
of other labor, though their product, if no other were 
created, would be valueless in exchange. They may 
be compared to the steam in an engine, which, when it 
is combined with proper machinery, produces the most 
su. rising results, but which, when left to itself, is dissi- 
pated into air. On the other hand, the separate parts 
of the machinery, though they might be of some use as 
raw material, yet, if the steam were withdrawn, would, 
immediately, become a mere mass of cumbersome and 
valueless lumber. 

Thus, we see that all the classes of laborers are mu- 
tually necessary to each other. Without a knowledge 
of the laws of nature, we should all be savages. With- 
out the skill and labor of the mechanic, there would 
neither exist the opportunity of acquiring knowledge, 
nor would our knowledge, if acquired, be of any practi- 
cal value. Nothing can, therefore, be more unreasona- 



56 INCREASE OF PRODUCTIVENESS. 

de than the prejudices which sometimes exist between 
these different classes of laborers, and nothing can be 
more beautiful, than their harmonious co-operation in 
every effort to increase production, and thus add to the 
conveniences and happiness of man. 



PART II. 



THE MODES BY WHICH THE PRODUCTIVENESS OF 
HUMAN INDUSTRY MAY BE INCREASED. 

It is obvious, that if the capital and number of labor- 
ers be at any one period the same, the annual amount of 
product created will be as the amount of industry ex- 
erted. Were the laborers all sickly, so that they could 
work only for four hours a day, there would be but half 
as large a product created, as if they all labored for 
eight hours a day. If, by a palsy, they were all de- 
prived of the use of one of their arms, a correspondent 
decrease of production must ensue. On the contrary, 
if, while the cost of their support remained the same, 
their ordinary power of labor could be doubled, there 
would be twice the usual amount of value created. And 
hence, in general, we see that, other things being equal, 
just in proportion as more labor is bestowed, the de- 
sires of every one are more fully gratified, that is, he 
grows richer ; and, on the contrary, as labor is dimin- 
ished, the laborer suffers, or grows poorer. This result 
every one witnesses every day. Sick, aged, and idle 
people suffer, because they either do not, or cannot, be- 
stow the labor upon capital necessary to create an 
amount of product sufficient for their subsistence. 

But the physical power of man is extremely limited. 
There is an average amount of fatigue which a human 
being can undergo, which can rarely, and but for very 
short periods, be exceeded. If he be worked too hard, 



INCREASE OF PRODUCTIVENESS. 57 

he sickens and dies ; and dies probably from being over- 
worked more readily and more commonly than any other 
animal. When, therefore, the whole physical power of 
man is employed upon the capital which he possesses, 
this may be considered the natural limit of human pro- 
ductiveness. 

1. But it is evident, that if by any means we could 
increase this power ten-fold, there would be a ten-fold 
increase of production. If we could, by any means, 
enable a man, with one day's labor, to execute as much 
change in capital as he could before execute with ten 
days' labor, there would be just ten times as many 
changes effected ; that is, ten times as much value creat- 
ed, and ten times as much product to be either enjoyed 
by himself, or to be exchanged for equivalent means of 
happiness. And, if the power of effecting changes be 
increased in other men in the same ratio, the product of 
the whole society will be increased in the same propor- 
tion. This is one of the effects produced by the use of 
natural agents ; and hence it is, that, just in proportion 
as they are used, the condition of man is annually and 
rapidly improved. 

2. But this is not all. There are many values which 
are necessary to the happiness and even to the existence 
of man, which he could not create by his unassisted 
powers. Thus, he needs shelter, cooked food, and 
clothing. But he could not, with his teeth and nails, 
cut down a tree and fashion it inio a cabin. He cannot, 
by his hands, either cook his food, or manufacture a fab- 
ric suitable for clothing. All these can, however, be 
done by other agents which he can command and control. 
Thus, iron can be made to cut down and fashion a tree, 
fire to cook his food, and a spinning wheel and loom can 
be made to furnish him with clothing. Thus we discover 
the second use of natural agents. They enable him to 
create values necessary to his existence, which, without 
their aid, could never be produced. In this manner, an 
additional power for the creation of product is given to 
human industry. 

3. But this is not all. It is found that a man, by de- 



58 MODES BY WHICH THE PRODUCTIVENESS 

voting himself to one particular pursuit, is able to create 
a vastly greater amount of product in a given time, than 
he could create if he devoted himself to several pursuits. 
Hence, if there are ten products to be created, by ten 
men, they will in a given time create a vastly greater 
amount, if each man labors entirely upon one, than if 
each man labors upon them all. The product of the 
whole ten, therefore, by such a division of labor, will be 
greatly augmented. This is the third method by which 
the productiveness of human industry may be increased. 

We see, then, the modes in which the productive 
power of man may be exerted. 1. Man may, unassist- 
ed, labor to the extent of his physical ability. 2. He 
may multiply his power, by availing himself of the agents 
of nature, either to facilitate the creation of products, 
or to create products which he could not create himself; 
or, 3d. He may economize his labor, by such arrange- 
ments as will enable him, in a given time and with a giv- 
en amount of fatigue, to accomplish a greater amount of 
production. 

It is, by adopting these means, that the human race 
advances from the savage to the civilized state. With 
nothing but his hands and feet, man could not subsist, 
except in the most temperate climates. His food would 
be wild fruits, and the animals which he could run down 
in the chase. This is the lowest point of human wretch- 
edness. It is a laborious and incessant struggle to ob- 
tain the bare means of prolonging existence. He in- 
vents a bow and arrow ; this is a natural agent, or a tool 
by which he avails himself of the elasticity of wood. 
By this simple tool, his condition is materially improved. 
Still, he is destitute of most of the comforts, and fre- 
quently, at times, of the necessaries of life. Hence, in 
cold climates, great numbers of savages every winter 
perish from cold and famine. He next becomes a 
shepherd. Here he avails himself of the use of natural 
agents. The flocks furnish him with wool, and the 
herds with milk. He now begins to taste the blessings 
of a regular and sufficient supply of food and clothing. 
He next becomes an agriculturist. Here, in addition 



OF HUMAN INDUSTRY MAY BE INCREASED. 59 

to the agents formerly employed, he makes use of the 
earth, manures, and implements, and begins rapidly to 
accumulate capital. His wants increase, and a division 
of labor is necessary to supply them. He now advances 
with rapid progress, and at every step employs either 
new agents, or else old agents more successfully, divides 
his labor more skilfully, and at length arrives at all the 
blessings of mature civilization. 

If it be asked, how far may this increased productive- 
ness of human industry be carried, we answer, it is im- 
possible to tell, unless we can ascertain how great are 
the blessings which God has in reserve for man. Who 
can estimate the benefits conferred on man by the mag- 
net, or by steam, or by the printing press ? And what 
reason have we to suppose that the gifts of God are 
exhausted, or that there are not other and more excellent 
natural agents yet to be discovered, or other modes of 
using those which we are already acquainted with, that 
shall produce even more surprising results than any which 
we have yet witnessed ? Before the discovery of the 
agents now in use, the most vivid imagination could never 
have conceived of the benefits which they have already 
conferred upon society. There is no reason to suppose, 
that we are now more capable of fathoming the goodness 
of God, than our ancestors were three 'or four hundred 
years ago. 

And hence we learn the inconceivable importance to 
a nation, of science, and of the labors of those who are 
devoted to the discovery of the laws of nature, and to 
the invention of new modes of applying these laws to 
the service of man. What would be the condition of 
the world at the present moment, if the knowledge of 
navigation and magnetism, and of the laws of chemistry 
were abolished ? Undiscovered knowledge is just as rich 
in the means of human happiness, as discovered knowl- 
edge. And hence, that nation which is most assiduously 
cherishing the means for availing itself of the benefit of 
all the laws of the Creator, will most rapidly provide it- 
self with the comforts and conveniences and luxuries of 
life, in the greatest abundance and at the least possible 



60 THE USE OF NATURAL AGENTS. 

cost. Who can tell the benefit which will result to this 
country, when Geology has revealed to us the riches 
which at present remain hidden from our view beneath 
the surface of the soil ? 



SECTION I. 

OF THE USE OF NATURAL AGENTS. 

We shall now proceed to consider the several means 
by which the productive power of industry may be in- 
creased. This section will treat of the use of natural 
agents. 

A natural agent, is any quality or relation of things 
which can be used for the purpose of assisting us in pro- 
duction. 

Thus, the light and heat of the sun are natural agents, 
without the aid of which we could not create vegetable 
products. 

Caloric, or artificial heat, is a natural agent, without 
which we could neither cook our food, prolong our lives 
m cold climates, give any valuable quality to metals, nor 
create steam for the purpose of machinery. Magnetism 
is a natural agent, by which we are enabled, in any part 
of the earth, to know in what direction we are moving. 

The various powers and instincts of animals are natu- 
ral agents, by which we accomplish purposes which could 
not be accomplished without them. Thus, the farmer 
avails himself of the muscular power and docility of the 
ox and the horse ; the huntsman, of the fleetness and 
scent of the hound, &c. 

Wind, the gravitating power of water, and steam, are 
natural agents, by means of which we create the momen- 
tum necessary to various operations in the arts. 

A tool, or a machine, is any combination of matter, 
by means of which we are enabled to avail ourselves 
of the qualities or relations of a natural agent. Thus, 



THE USE OF NATURAL AGENTS. 61 

a lens, or burning glass, is a tool, by means of which 
we concentrate, for useful purposes, the rays of the sun. 

A stove, or a fire place, is an instrument, or tool, by 
which we avail ourselves of the calorific properties of 
fuel. 

A mariner 1 s compass is a tool, by which we avail 
ourselves of the peculiar quality of the magnetic needle. 

A water wheel is a tool, by means of which we avail 
ourselves of the gravitating power of water. 

A steam engine is a tool, by means of which we avail 
ourselves of the expansive power of steam. 

The only difference between a tool and a machine 
is, that the one is more complicated than the other. 
A common hammer is a tool, by means of which we 
avail ourselves of the gravity and density of iron, and 
of the power of the lever. A trip-hammer, by which 
large masses of iron are fashioned and wrought, is called 
a machine, but the principles employed are, in both 
cases, the same, only the trip-hammer is moved by a 
natural agent, water, or steam, while the common 
hammer is moved by the hand. 

From what has already been said, it will be easily 
perceived, that the qualities and relations of natural 
agents are the gift of God, and, being His. gift, they 
cost us nothing. Thus, in order to avail ourselves of 
the momentum produced by a water-fall, we have only 
to construct the water-wheel and its necessary appen- 
dages, and place them in a proper position. We then 
have the use of the falling water, without further ex- 
pense. As, therefore, our only outlay is the cost of 
the instrument by which the natural agent is rendered 
available, this is the only expenditure which demands 
the attention of the political economist. 

If we reflect upon the various natural agents em- 
ployed by man, we shall see that some of them can 
be used without any tools whatever. Such is the case 
in agricultural labor, with air, and the light of the sun. 
Others require only so simple instruments, that their 
effect upon price is not appreciable. Thus, a mariner's 
compass, which would last for twenty years, and assist 
6 



62 OF AGENTS WHICH CREATE MOMENTUM. 

n the transportation of half as many millions' value of 
merchandise, would cost but a few dollars. Others 
are used by few persons, and for particular and unusual 
purposes, as the lens, or the microscope. It is only 
those agents which require for their employment, 
machinery of which the cost is appreciable, and which 
are of so general necessity, that their use enters into 
consideration in estimating the expenses of production, 
that require to be specially noticed in Political 
Economy. 

The means most universally required for creating 
change, is momentum, or, as it is commonly called, 
power. Without this, in agriculture, no change in ele- 
mentary form, and, in mechanics, no change in aggre- 
gate form, and in transportation, no change in place, 
can be effected. The instruments necessary to avail 
ourselves of the natural agents which create momentum, 
or which enable us to use it in particular methods, 
are very numerous and very costly, and form a lai^fc 
portion of the fixed capital of man. The natural agents 
which man uses for this purpose are, therefore, tuose 
which particularly claim our attention ; and to these, 
the remainder of this section will be devoted. 

The natural agents connected with the use of mo- 
mentum, may be divided into two classes : 

1. Those which create momentum. 

2. Those which enable us to use it. 
1. Of those which create momentum. 

This class of agents may be subdivided into two 
kinds : 1st. Animate ; and, 2d. Inanimate. 

1. Animate. These are, beasts of draft and burden, 
generally. The most common of these are, the ox, the 
horse, and the mule ; others in use in particular dis- 
tricts, are the camel, the elephant, the dog, and the 
reindeer. 

The subjection of animals to the human will marks 
an era in the progress of civilization ; and teaches us 
that the first important step has been taken in the im- 
provement of the condition of man, and of the produc- 
tiveness of human industry. The ox and the horse 



OF ANIMATE AGENTS. 63 

have much greater physical power than man. They 
may also be sustained at a much less expense. Their 
food is the spontaneous production of the earth, which, 
for a large part of the year, they gather for themselves, 
and which requires no labor of preparation. They 
need no clothing in any latitude, and in the warmer parts 
of the temperate zone, need no shelter. But, in con- 
sequence of his superiority in intellectual endowment, 
man can direct and govern the physical power of several 
of these animals, and, by attaching them to agricultural 
machines, can command that power at his will. If, 
then, by the use of animals, one man can wield a phys- 
ical force equal to that of ten men, he will be able to 
produce, by the labor of a day, ten times as much as he 
could before the introduction of animate agents. He 
will, therefore, by the same amount of labor, produce 
ten times as large an amount of objects of desire ; that 
is, of means of human happiness. He will have a 
larger surplus to employ in fixed capital for the next 
year, and this surplus will be annually increasing, and 
increasing at the rate of compound interest. He will 
have a larger portion to exchange ; hence, he will be 
able, also, to enjoy a larger amount of his neighbor's 
products. He will be able to exchange with a greater 
number of producers ; hence, he will have a larger 
number of his desires gratified. And when once this 
first step has been taken, capital, unless destroyed by 
man's perverse moral dispositions, must increase so 
rapidly, that the mechanical arts soon commence, and 
permanent improvements and intellectual cultivation will 
follow in rapid succession. 

In the earliest stages of society, animate power must 
be used for the production of momentum, in all the 
three departments of human industry. In the labors of 
agriculture, it is still employed, and must probably be 
thus employed forever. Nothing has yet superseded 
it, and there is reason to doubt whether any thing ever 
will supersede it. In this respect, therefore, so far as 
the means for the creation of momentum are concerned, 
the early and the later periods of society remain on a 



64 OP INANIMATE AGENTS. 

level. The improvements that have been made by the 
introduction of other creative forces, have generally 
been connected with the other modes of operative 
industry. 

2. Of Inanimate Natural Agents. The inanimate 
agents, most commonly in use, are : The explosive 
force of Gunpowder ; Wind ; The gravitating power 
of Water ; and The expansive power of Steam. 

1. Gunpowder is used in the blasting of rocks, in 
hunting, and in war. Its value, in the blasting of rocks, 
is very considerable. By drilling a small hole, which 
may be done by one man in a day, and by the use of a 
few ounces of gunpowder, a force may be exerted, 
in an instant, producing an effect which, twenty men, 
for several days, could not otherwise have exerted. 
Hence, it is of very great use in all works of internal 
improvement, where rocks must be removed, in order 
to admit the passage of railroads and canals. In fact, 
it is doubtful whether many of the most important of 
these works could ever have been executed, but for this 
agent. Others, if the execution of them were possible, 
must have been accomplished at so great an expense, 
that the investment of capital in them would not have 
been profitable, and, of course, it would not have been 
made. 

Gunpowder is also used extensively in war. If war 
be beneficial, or even necessary, gunpowder is an agent 
of the utmost importance ; for, by no other means yet 
discovered, is it possible to destroy so many men, with 
so little physical suffering, and with so little personal 
labor. It has also a moral advantage over other meth- 
ods of slaughter, inasmuch as the destruction of human 
life, in this manner, excites less sensibly the ferocity 
of the human heart. On this account, wars, since its 
introduction, have been conducted on more humane prin- 
ciples than formerly. It has also been a valuable aux- 
iliary to the progress of civilization, since it has confer- 
red on civilized, an undisputed mastery over uncivilized 
nations. There has not been, for centuries, any danger 
to Christendom from barbarian invasion. Besides, the 



OF INANIMATE AGENTS. 65 

more energetic are the means of destruction in war, the 
less is the loss of life in battle. Hence, of a given 
number of combatants in an engagement, a much smaller 
proportion is now slain than formerly. This might al- 
most give rise to the seemingly paradoxical hope, that 
some means of destruction might yet be invented, so 
overwhelming in its effects, as to put the smallest num- 
ber of men on a level with the greatest, and hence to put 
an end to wars altogether. 

2. Another agent used for the creation of momen- 
tum, is Wind. Wind, as a stationary agent, is an impor- 
tant mechanical power, in countries destitute of water 
power, or of the fuel necessary for the production of 
steam, or of the capital which must be invested in the 
machinery required in the use of more expensive agents. 
Its principal advantage is its cheapness. It costs noth- 
ing to create it, and the machinery, by which it is ap- 
plied, is simple, and easily constructed. 

The disadvantages of wind, are its uncertainty, both 
in quantity and in time, and the difficulty with which it 
is regulated. In consequence of the irregularity of its 
force, it is impossible to employ it in labor requiring del- 
icacy of operation : and, in consequence of its uncer- 
tainty in time, it could not be employed where the labor 
of many persons was dependent on its assistance. 

As a locomotive power, on water, wind is almost uni- 
versally used in navigation. Though the direction, in 
which it acts, is variable ; yet, nautical skill enables us 
to use it when blowing from almost any point whatever. 
Its variation, in the quantity of force, is here also a mat- 
ter of less consequence, since this circumstance can 
affect the operation to be performed, only in respect to 
time. And variation, even in this respect, has, in a 
great degree yielded to science and enterprise. It is 
astonishing to observe with what precision and certainty 
voyages are now made between New York and Liver- 
pool. Hence, this agent has, until lately, been univer- 
sally used in the navigation of the ocean. With the in- 
ventions of Fulton a new era commenced. Steam very 
soon was employed in the place of wind in the naviga- 
6* 



66 OF INANIMATE AGENTS. 

tion of rivers and along the sea-board. It was not, how- 
ever, until the year 1)537 that the experiment was suc- 
cessfully made, of establishing a regular communication 
between Europe and America by means of steam. In 
the May of that year, the steamers Sinus and Great 
Western, the former from Liverpool, the latter from 
Bristol, arrived in New York. Since that time passages 
have continued to be made between the above ports 
with great regularity, and thus far without disaster or ac- 
cident. It is demonstrated that the navigation of the 
Atlantic, by steam, is as perfectly within the power of 
man, as the navigation of the Thames or the Hudson. 
Steamers are also at present plying regularly from 
France and Great Britain to every part of the Mediter- 
ranean. Steamers now leave Boston and Liverpool 
twice every month, and very rarely have they failed to 
arrive within twelve hours of their appointed time at any 
season of the year. 

3. Another agent, used for the creation of momen- 
tum is the gravitating power of Water. This is used 
only as a stationary agent. Its advantages are, that it is 
cheap, tolerably constant, and frequently, is capable of 
exerting great mechanical force. Its disadvantages are, 
that it is stationary ; that is, that it can be used only in 
situations where it has been created by nature. Hence, 
it is frequently at a considerable distance from the sea- 
ports whence the manufacturer derives his supplies, and 
whence he exports his products. In such cases, the 
cost of transportation must be deducted from the profits 
of the establishment, and is of course, to this amount, a 
diminution of their value. 

Water cannot always be commanded in sufficient 
quantity. Very few mill-seats are secure from the lia- 
bility to suffer from the want of water. This is a great 
inconvenience, inasmuch as, in seasons of drought, a 
large number of the laborers must be unemployed, and 
a large portion of the expenses of the establishment 
must be incurred, without yielding any remuneration to 
the proprietor. 

Another disadvantage of water power is, that it is lia- 



OF INANIMATE AGENTS. 67 

ble to danger from inundation. Though this may be 
guarded against, in many cases ; yet, it frequently can 
be done only at an expense which greatly reduces the 
cheapness of the agent. Notwithstanding these disad- 
vantages, water power will probably be always used, 
where great mechanical force is required ; where the 
machinery to be employed is simple, and where the op- 
eration does not require the greatest possible nicety of 
execution. 

4. The power, however, most commonly in use at 
present, is Steam. Its advantages are, that it can be 
used to create any required degree of mechanical force ; 
that it is perfectly under human control ; that it may be 
created in any place where fuel can be obtained ; that it 
can be used at will, either as a stationary, or a locomo- 
tive power ; and that it can be made to act with perfect 
regularity. Its only disadvantage, is its expensiveness. 
The machinery by which it is generated is costly, and 
requires frequent repairs ; and the fuel, by which it is 
maintained, is a very serious item of consumption. The 
price of engines, however, will be gradually reduced, as 
the demand for them increases. And it is probable, 
that, by improvement in their construction, the consump- 
tion of fuel will be greatly diminished ; while increased 
facilities for transportation will materially reduce its 
price. The introduction of steam power has greatly re- 
duced the price of fuel in Great Britain. 

The question whether steam or water power should 
be used in any particular case, is, I suppose, to be de- 
cided by their relative expensiveness. This will be de- 
cided, principally, by the place in which the power may 
be required. Water power will generally be the cheaper 
where it can be procured in abundance, and sufficiently 
near to a market or to tide water. But where it is vari- 
able in quantity, or is at a considerable distance from the 
place of delivery, the cost of transportation will fre- 
quently overbalance its other advantages, and render 
steam power the more economical. Machinery, pro- 
pelled by steam, can be erected and carried on upon a 
wharf, or in the midst of a city ; and hence it avoids all 



68 ANIMATE AND INANIMATE AGENTS. 

the cost of unnecessary transportation. Machinery, 
propelled by water power, can be erected only at the 
place where the water power exists, and, of course, is 
subject to all the expense of transportation between that 
place and the market. 

The advantages of inanimate over animate natural 
agents, are several. -» 

1. Inanimate agents can, within a small compass, and 
with comparatively little weight, produce a vastly greater 
amount of momentum, than animate agents. Thus, a 
steam engine, of one hundred and fifty or two hundred 
horse power, occupies but a small space, and forms but 
a small part of the cargo of a vessel. But so great a 
number of horses could scarcely be carried in any vessel 
designed to transport either freight or passengers ; and, 
besides, no mechanical arrangement has yet been devis- 
ed, by which such a number of animals could conven- 
iently be employed upon one operation. 

2. They are continuous ; that is, they are never liable 
to fatigue, and never need rest. Animals must spend 
the greater part of their time in feeding or in repose. 
Specially is this the case, if they are worked rapidly. 
During this time, the labor which they perform must 
either be suspended, or else other animals must take their 
place. A horse cannot labor severely for more than 
eight hours in twenty-four. Hence, if the uninterrupted 
labor of horses were required for twenty-four hours, 
three relays must be provided. Thus, if a boat were 
required to perform a voyage in twenty-four hours, she 
must employ three relays of horses ; that is, a steam 
boat, worked by a power equal to that of one hundred 
and fifty horses, would require four hundred and fifty 
horses, in order to create the necessary momentum. 

3. Hence, there is a great gain in Economy. The 
first cost of inanimate is generally less than that of an- 
imate agents ; they are liable_ to no diseases; they re- 
quire no food ; and create expense only while they are 
performing their work. Were the labor now performed 
by steam, to be performed by horses, the price of the 
ordinary necessaries of life would be quadrupled, and 



ANIMATE AND INANIMATE AGENTS. 69 

many articles of ordinary use would be placed out of the 
reach of any but the most opulent. Nor is this all. 
The substitution of inanimate for animate power, has a 
great tendency to reduce the cost or to increase the 
supply of all agricultural products. Suppose that, by 
the use of steam, one thousand horses can be dispensed 
with. A horse requires for sustenance, throughout the 
year, as much agricultural produce as would support 
eight men. If, then, these one thousand horses can be 
dispensed with, there may be produced, on the land 
which was formerly employed for the production of hay, 
as much wheat as will support eight thousand men. 
This must, at first, reduce the price of wheat ; and the 
result would be, that the district would support eight 
thousand more men than before. 

4. There is also, commonly, a gain in personal safe- 
ty. Inanimate agents act under laws which may be 
known and obeyed, and of which the results may be 
commonly foreseen and guarded against. Animals are 
endowed with passions and will, which we can frequently 
neither control nor influence. Besides, the greater ex- 
pensiveness.of the individual machines employed in the 
use of inanimate agents, renders it for the interest of the 
proprietor, to employ men of experience and responsi- 
bility to manage them. This very sensibly diminishes 
the risk. When we reflect upon the vast amount of 
travelling by steamboats and railroads, it must be evi- 
dent, that, notwithstanding the accidents to which they 
are liable, a vastly greater amount of human life would 
be sacrificed, if the same number of persons were trans- 
ported by horses. It is also to be remembered, that 
the use of steam is yet in its infancy, and that greater 
experience and skill will materially reduce the number 
of accidents to which this mode of conveyance is at 
present liable. 

5. Inanimate agents can be used without the infliction 
of fain. Inanimate agents are insensible. Where the 
labor to be accomplished is either severe, or where it 
requires great speed, animals must be rapidly destroyed. 
This exposes them to great suffering. A horse in a 



70 MEANS BY WHICH MOMENTUM IS APPLIED. 

stage coach can rarely travel, rapidly, more than ten 
miles a day ; and most horses will endure even this la- 
bor but for a short lime. From this suffering inanimate 
power is exempt. It never endures pain from being 
over driven. 

6. Animate power decreases with velocity. Hence, 
we must soon arrive at a point beyond which it can no 
further be used to create momentum. If we represent 
the tractive force of a horse, when moving at two miles 
an hour, at 100, his force at the rate of three miles, will 
be 81 ; at the rate of four miles, 64 ; at the rate of five 
miles, 49 ; at the rate of six miles, 36 ; while at the 
top of his speed, he can carry nothing more than his 
own weight. An engine, on the contrary, may be made 
to work as powerfully at one degree of velocity as at an- 
other. In all cases, therefore, in which both great pow- 
er and great velocity are required, inanimate power 
must, of necessity, be employed. 

From these causes, we see that inanimate is rapidly 
taking the place of animate power, both where stationary 
and where locomotive force is required. By the addi- 
tional speed which it is capable of producing, it gives 
rise to great economy of time. This, to all persons en- 
gaged in active employments, is a consideration of vast 
moment. Being a continuous agent, it is also enabled to 
act with the greatest certainty. Hence, men may ad- 
just their transactions, in different places, with entire 
precision. This is also another source of economy, 
both of time and of capital. And, besides, notwith- 
standing the expensiveness of the arrangements for the 
use of locomotive forces, yet the amount of additional 
travelling to which they give rise, is so great, that the 
expensiveness of transportation between different places 
is, in general, materially diminished. 

II. Of the natural agents by which momentum is ap- 
plied. 

It is obvious, that a great addition is made to human 
power, where the agents for creating momentum have 
been discovered. But this is not all. Several combi- 
nations of matter may be formed, by which mere hu- 



MEANS BY WHICH MOMENTUM IS APPLIED. 71 

man force may be greatly assisted, and which, by being 
united with the agents for creating momentum, may 
greatly increase, and vary, and give adaptation to, its 
utility. These are called the mechanical powers, which 
are treated of at large in works on Mechanics and Nat- 
ural Philosophy. In their simple form, they are the 
lever, the wheel and axle, the inclined plane, the screw, 
the pulley, and the wedge. They are variously combin- 
ed, for producing the different results of mechanics, but 
may be all reduced to these simple elements. 

By means of these, the muscular power of man is en- 
abled greatly to increase its effect ; that is, a man by 
his own strength can now accomplish labor which he 
could not accomplish without them. Though these in- 
struments give no new strength, yet they greatly increase 
the effectiveness of that which already exists ; and 
hence, their invention marks an important era in the pro- 
gress of civilization. It is also to be remarked, that 
their origin, in point of time, is far in advance of the dis- 
covery of the creative agents. Archimedes had made 
great progress in the discovery and application of these 
modifying powers, when the use of creative agents was 
almost unknown. 

The triumph of human skill is, however, achieved, 
when these two forms of natural agency are combined 
in a single machine. By the one we generate power, to 
what extent soever we choose ; and by the other we 
modify it in any form, give to it any application, and 
direct it to any purpose, that our convenience may 
require. It is in this manner, that man renders all the 
various powers of nature tributary to himself. He can 
thus create, and use as he pleases, as great a power as 
he desires. He devolves the labor on nature, and he 
has only to fabricate the instruments, and give them their 
direction. He is successful just in proportion as he 
does this ; since nature always works with undeviating 
accuracy, with unerring skill, with indefatigable perse- 
verance ; and she always works for nothing. 

It may be useful to specify some of the results ac- 
complished by the various instruments, which man em 



72 MEANS BY WHICH MOMENTUM IS APPLIED. 

ploys for modifying that momentum which is exerted by 
the first class of natural agents. 

1. We are thus enabled to change the direction of 
the power. Thus, in the cylinder of the steam engine, 
the momentum is created either in perpendicular or hor- 
izontal strokes. This, being by means of an arm and a 
crank changed into a circular motion, moves the paddle- 
wheels of a steamboat. Thus, also, in the machinery 
for moving a trip-hammer, a circular is changed into a 
perpendicular motion, by the striking of the cogs of a 
wheel upon the short arm of a lever, while the hammer 
is attached to the other arm. 

2. We exchange poioer for velocity. This is done in 
all spinning machinery. By water or by steam, we 
cause a large wheel to revolve ten, twenty, or thirty 
times in a minute, and with a power equal to that which 
could be produced by fifty or one hundred horses. In 
spinning, however, we need small power, but great ve- 
locity. Hence, by the combination of various large and 
small wheels, we produce a velocity, in a thousand spin- 
dles, equal to many thousand revolutions in a minute. 
The whole of this fifty or one hundred horse power, is 
thus spread over a large manufactory, and adapted, by 
various contrivances, to every degree of velocity, and 
every form of motion that may be required. 

3. We are thus enabled to exert forces too great for 
animate power. By water power, or by steam, we can 
generate as great a force as we please ; and we have 
only to combine with it the proper adjustments, in order 
to exert upon any point any momentum which we desire. 
The power required to roll and hammer iron, or copper, 
to propel steamboats, to forge anchors, and that used in 
several other of the arts, is greater than could be exert- 
ed by any animate force with which we are acquainted, 
unless it were exerted by means of some combination 
of the mechanical forces. 

4. We are thus also enabled to execute operations too 
delicate for human touch. Very delicate operations, 
soon weary the nervous system by the excessive atten- 
tion which they of necessity require. Thus, in order 



MEANS BY WHICH MOMENTUM IS APPLIED. 73 

to spin the finest thread on a spinning wheel, there must 
be great accuracy, both in the velocity of the wheel, 
and in the muscular power exerted in drawing out the 
thread. This requires an effort of attention, which the 
human system cannot long maintain, and, of course, the 
thread will frequently be uneven. But by means of 
machinery, both of these operations may be adjusted 
with mathematical accuracy ; and as machines have no 
nerves, they will be perfectly faithful to that adjustment. 
Thus we invariably see that the most delicate fabrics are 
those that are wrought by natural agents. Hence ma- 
chinery is necessarily used in the manufacture of such 
articles as require for their formation identity of result, 
such as screws, types, &c. 

5. By means of machinery, w r e are enabled to accu- 
mulate power. We thus exchange a continuous and 
small force, for a sudden and violent one. Such is the 
case with the pile-driver, and the common beetle or mal- 
let, when used in combination with the wedge. 

6. By the same means we are enabled to exchange a 
short and irregular effort for a continuous and regular 
movement, or to spread the action of a short, over a long 
period of time. This is done in clocks, watches, and 
other similar machinery. Here w T e spread the action of 
a minute, over a day, of a week, and with almost math- 
ematical accuracy. 

In consequence of the above mentioned application 
of machinery, various other advantages are realized in 
production. For instance ; there is frequently a great 
saving of material, as in the change from making boards 
with the adze, to that of making them with the saw ; 
and again the labor of natural agents is so much cheap- 
er, that many articles, which would otherwise have been 
worthless, are now deserving of attention, as they may 
now be profitably endowed with some form of value. 

I close these remarks, upon the use of natural agents, 
with an extract, very graphically describing the power 
of the steam engine, which has commonly been ascribed 
to Francis Jeffrey, Esquire, now Lord Jeffrey, of Ed- 
inburgh : 

7 



74 MEANS BY WHICH MOMENTUM IS APPLIED. 

" It (the steam engine) has become a thing, stupen- 
dous alike for its force and its flexibility ; for the prodi- 
gious power which it can exert ; and the ease, precision, 
and ductility with which it can be varied, distributed, and 
applied. The trunk of an elephant, that can pick up a 
pin or rend an oak, is as nothing to it. It can engrave 
a seal, and crush masses of obdurate metal before it ; 
draw out, without breaking, a thread as fine as a gossa- 
mer ; and lift up a ship of war, like a bauble in the air. 
It can embroider muslin, and forge anchors ; cut steel 
into ribands, and impel loaded vessels against the fury 
of the winds and waves. 

"It would be difficult to estimate the value of the 
benefits which these inventions have conferred upon the 
country. There is no branch of industry that has not 
been indebted to them, and in all the most material, they 
have not only widened most magnificently the field of its 
exertions, but multiplied, a thousand fold, the amount of 
its productions. It is our improved steam engine, that 
has fought the battles of Europe, and exalted and sus- 
tained, through the late tremendous contest, the political 
greatness of our land. It is the same great power, 
which enables us to pay our national debt, and to main- 
tain the arduous struggle in which we are still engaged, 
with the skill and capital of countries less oppressed with 
taxation. 

" But these are poor and narrow views of its impor- 
tance. It has increased, indefinitely, the mass of human 
comforts and enjoyments, and rendered cheap and acces- 
sible, all over the world, the materials of wealth and 
prosperity. It has armed the feeble hand of man, in 
short, with a power to which no limits can be assigned ; 
completed the. dominion of mind over the most refractory 
qualities of matter ; and laid a sure foundation for all 
those future miracles of mechanical power, which are to 
aid and reward the labors of after generations. " 



75 
SECTION II. 

OF DIVISION OF LABOR. 

We have shown that the productiveness of human in- 
dustry may be greatly increased by the discovery of the 
qualities and relations of things, and by the invention of 
instruments, by which those qualities may be applied and 
modified. In this manner, the power of man receives 
an almost incalculable augmentation. But this is not 
all. It is found that the result of human effort may be 
still further very greatly increased. Thus : supposing 
the agents of nature, and also their mode of application, 
to be known, and that a given number of men are about 
to perform an operation, they may make such arrange- 
ments among themselves, as will, in a given time, and 
with a given expenditure of labor, enable them to accom- 
plish a vastly greater result than could be accomplished 
without such arrangements. The mode, in which this is 
effected, is by division of labor. 

Division of labor is always, to some degree, employed 
where different individuals are engaged in the different 
branches of human industry. Thus, labor is divided 
when different persons employ themselves in the several 
departments of discovery, application, and operation. 
Labor is still further divided, when those employed in 
these great departments, are separated into distinct 
classes, each class devoting itself to the accomplishment 
of one particular object. Thus, one man investigates 
the laws of mechanics ; another, those of astronomy ; 
and a third, those of vegetation. One man is devoted 
to the profession of the law ; and another, to that of 
medicine ; while each separate trade is employed in ihe 
creation of a particular product. By all these divisions, 
it is manifest that the result of the whole is greatly in- 
creased. It is only the savage, that combines in his 
own person, in all their departments, the character of 
philosopher, inventor, and operator. He approximates 



76 DIVISION OF LABOR. 

to the civilized state, only in so far as he begins to con- 
fine himself to some particular calling. And it is always 
in the most advanced periods of civilization, that division 
of labor is carried to its ultimate limits. 

But, besides this, the different parts of any operation 
may be analyzed ; and to each part the whole labor 
of a single individual may be confined." Thus, the la- 
bor of making a pin may be divided into wire drawing, 
wire straightening, pointing, heading, tinning, &c. In 
Political Economy, labor is said to be divided, just in 
so far as these several processes are assigned to separate 
operators. It is found, by experience, that such an ar- 
rangement increases the productiveness of human labor 
to an extent, which, to a person who bad not examined 
the facts, would appear wholly incredible. The princi- 
ples on which this increased productiveness of labor 
depends, are the following : 

1. Division of labor shortens the period required for 
learning an operation. The more complicated the oper- 
ation, the longer is the time necessary for acquiring the 
skill requisite to the performing of it successfully. But 
this time spent in learning, is useless to the operator and 
to society, only in so far as it is necessary to the crea- 
tion of the product. The longer the time necessary for 
learning an operation, the higher must be the wages of 
the operator, for the remainder of his life ; and also, of 
course, the greater must be the price of his products. 
If this can be lessened, the price of course will fall. 
Now, that this is lessened, by division of labor, is evi- 
dent from an obvious example. Suppose that a given 
process, say the making of nails, consists of seven oper- 
ations ; and that each of these operations required one 
year's practice, before it could be successfully perform- 
ed. Now, if seven men were to learn this occupation, 
and each one were obliged to learn every operation, the 
time required would be 7 X 7 = 49 years ; whereas, if 
each of them were required to learn but one, the time 
would be but 7 X 1 =7, or, the difference would be, 
49 — 7 = 42 years of human labor, or six sevenths of 
the whole time, which would thus be saved. There 



DIVISION OF LABOR. 77 

would be six years more of productive labor, in the life 
of each of these men ; and, as they had spent less time 
in acquiring their art, they could afford to exercise it for 
lower wages. 

Besides, there is, intimately connected with this cause, 
another, of considerable importance. Every one, in 
learning an art, must, by unskilfulness, destroy a consid- 
erable portion of capital. And this amount of capital 
will be in proportion to the number of operations which 
he is obliged to learn. Thus, suppose that a man learns 
seven operations, and, in learning each, destroys ten 
dollars' worth of capital, the amount which he will de- 
stroy, in acquiring his whole trade, will be 7 X 10 = 70. 
If he have to learn but one, it will be but ten dollars ; 
and thus, the difference will be 70 — 10 = 60 dollars, 
upon every such individual. A difference, so great as 
these two combined, when spread over the whole face 
of society, will have no inconsiderable effect upon the 
annual nett revenue of a community. 

2. When one man performs all the operations required 
in a complicated process, much time is lost in passing 
from one operation to another. By division of labor, 
this loss is avoided. 

The effect of habit is known to every one. It ren- 
ders any operation easy, which is frequently repeated. 
The mind and the muscles become adapted to a partic- 
ular form of labor ; but, if that form of labor be sus- 
pended, and our attention be directed to another, it 
requires a considerable time before we can acquire a 
different habit, and, in the mean time, the good effects 
of the preceding habit, are, to a considerable degree, 
lost. Hence, he who is frequently passing from one 
occupation to another, is in the condition of him who is, 
during his whole life, forming habits ; and never in the 
condition of him, who has the advantage of habits 
already formed. Besides, this long habit produces in 
the muscles a capacity for continued exertion. He who 
is in the habit of performing an operation, can perform 
it, without sensible fatigue, for several hours together. 
Every one who has ever sawed wood, or used a spade 
7# 



78 DIVISION OF LABOR. 

in a garden, is sensible of this fact. Now, all this ad- 
vantage is lost, by frequently turning from one operation 
to another. 

3. Where complicated tools are to be used, and there 
is no division of labor, much time is also lost in adjust- 
ing them to the different kinds of work. By division 
of labor, this disadvantage is obviated. Suppose that 
nails, of different sizes, are to be made, and it is neces- 
sary that the machinery, in order to adapt it to the dif- 
ferent kinds of work, should be frequently adjusted ; the 
time so occupied produces nothing, and is lost. If, on 
the contrary, one machine is permanently used for the 
manufacture of nails of one particular size, all this loss 
is avoided. This is also more obvious, when the ad- 
justment involves expense ; as, for instance, when a fur- 
nace is used. If a furnace be heated, and then suffered 
to cool while the operator is performing some other la- 
bor, the fuel consumed, after he leaves it, and that which 
is used to bring it again to the requisite temperature, are 
a total loss, in addition to that of the time and labor re- 
quired in kindling the fire, and in waiting for the rise of 
temperature. By dividing the labor, so that one person 
shall be always employed at the furnace, whilst others 
are employed at other parts of the process, much capi- 
tal and labor will be saved. 

4. By constantly pursuing the same occupation, a 
degree of skill and dexterity is acquired, which greatly 
increases the productiveness of human labor. This ad- 
vantage is lost, by employing the same individual upon 
several operations. Adam Smith informs us, that a 
blacksmith, who occasionally makes nails, but whose 
whole business is not that of a nail-maker, can make but 
from eight hundred to one thousand nails a day ; whilst 
a lad, who has nevsr exercised any other trade, can 
make upwards of twenty-three hundred a day. All who 
have been accustomed to visit manufactories, must have 
been surprised to observe the dexterity which is ac- 
quired, even by children, in performing the operations 
in which they are exclusively engaged. It is probable 
that ,, the performers of jugglery, or sleight-of-hand, de- 



DIVISION OF LABOR. 79 

rive their skill almost entirely from this cause. They 
seldom perform more than a few operations, but by 
practising these, and these alone, for a great length of 
time, they at last attain to a proficiency, which, to a 
spectator, is incomprehensible. 

5. Division of labor suggests the contrivance of tools 
for the performance of the operation in which it is em- 
ployed. 

The more completely any process is analyzed, the 
simpler must become the individual operations of which 
it is composed : and the simpler any operation is, the 
easier is it to contrive a tool, or an adjustment, by which 
it may be performed. Adam Smith informs us, that, in 
the first steam engines, boys were constantly employed 
to open a communication between the boiler and cylin- 
der, according as the piston ascended or descended. 
One of these boys observed, that, by uniting the handle 
of the valve which opened this communication with an- 
other part of the machine, the valve would open and 
shut without his assistance, and leave him at liberty to 
play with. his fellows. One of the most important im- 
provements of this machine was thus, by division of 
labor, brought within the capacity of a playful boy. It 
would have been very difficult to invent machinery for 
the making of nails, when all the processes were con- 
sidered as a complicated whole. But after the several 
operations are divided, and are assigned to individuals 
separately, it becomes comparatively easy to construct 
an adjustment, by which any one of them, singly, could 
be performed. This is the first step in invention. But 
this is not all. After these several single instruments 
have been invented, the next step is to combine them 
together. This is the most finished effort of mechanical 
genius. This is the principal difference between a tool 
and a machine. A tool performs one single operation ; 
a machine combines several tools together, and accom- 
plishes either the whole, or a considerable part, of a 
complicated process. 

6. Every one, at all acquainted with manufacturing 
employments, must have observed, that some of the op- 



80 DIVISION OF LABOR. 

erations in a given process, require greater muscular 
power, or greater skill, or greater dexterity than others. 
Some, for instance, can be performed only by the most 
experienced workmen, while others can be perfectly 
well performed by children. Now, by division of labor 
a manufacturer is enabled to employ, upon each opera- 
tion, precisely the labor adapted to it, and is obliged to 
pay for each portion of the labor no more than it is ac- 
tually worth. This must greatly diminish the cost of 
production. Thus, the manufacture of pins is divided 
into ten different operations, and each operation employs 
one laborer. But some of those laborers are men ; 
others are women and children ; and their wages vary 
from six shillings to four and a half pence sterling a day. 
If the labor were not divided, one person must under- 
stand the whole process, and, therefore, must be em- 
ployed at the highest price of labor ; and hence, he 
must be paid at the rate of six shillings a day, for that 
part of the work which is worth only four and a half 
pence a day. Every one must see that this would 
greatly increase the price of pins, and also occasion a 
great deficiency in labor. It is by this means, also, that 
occupation is provided for the weak and the aged, for 
females and for children, who would, otherwise, be una- 
ble to earn any thing. Thus, all the labor of the com- 
munity is rendered productive, and an immense amount 
is annually added to the revenue of a country. Nor is 
the gain to be estimated at simply what is thus earned. 
The whole community is thus acquiring those habits of 
industry and self-dependence, which are essential to its 
happiness and well-being, no less than to the rapid ac- 
cumulation of its capital. * 

* The following facts, respecting the manufacture of watches, illus- 
trate very forcibty the extent to which the division of labor may be 
carried, and also the amount of value which may be conferred upon 
the cheapest substance by accumulated and high priced labor.- — 

A watch consists of 992 pieces, and forty-three trades are employed 
in their construction ; the chain, whose length is eight inches, has lf>5 
links, each containing three plates and two pins, in all 825 pieces, and 
passes through fifteen hands, men, women, and children, of three 
trades, before it is complete : allowing them five hands in each trade, 
215 persons find employment in making a watch. This extensive and 



DIVISION OF LABOR. 81 

Nor are the benefits of the division of labor confined 
to mechanical processes. The results have been equally 
interesting, in those cases where this principle has been 
applied to intellectual labor. The effect of such a di- 
vision is seen in the following account, which I intro- 
duce here, not only because it very happily illustrates 
this whole subject, but also because it may suggest to 
scientific men, some other cases in which it may be 
again applied with similar benefit. 

During the period of the French revolution, the gov- 
ernment was desirous of producing a series of mathe- 
matical tables, in order to facilitate the extension of the 
decimal system, which had been recently adopted. 
They directed their mathematicians to construct such 
tables on the most extensive scale. The superintend- 
ence of the work was confided to M. Prony. It hap- 
pened that shortly after he had undertaken it, he opened, 
in a bookstore, Adam Smith's " Wealth of Nations," 
and, by accident, turned to the chapter on division of 
labor. The thought immediately suggested itself, that 
this might be adopted in the work in which he was en- 
gaged. He immediately followed out the suggestion, 
and arranged his plan accordingly. He divided the 
persons who were to execute the labor into three 
sections : 

The first section was composed of five or six of the 
most eminent mathematicians of France. Their duty 
was to ascertain the analytical expressions which were 
most readily adapted to simple numerical calculation, and 
which could be performed by many individuals employed 
at the same time. The formulas on the use of which it 
had decided, were to be delivered to the second section. 

numerous individuality will apply, more or less, to every manufac- 
tured article in every day use ; but no branch of manufactures will 
afford such an illustration of the value of labor. The iron of which 
the balance-spring is formed is valued at something less than a far- 
thing ; this produces an ounce of steel, worth 4^d., which is drawn 
into 'i.'JoO yards of spring wire, and represents in the market £ 13 4s ; 
but still another process of hardening this originally farthing's worth 
of iron renders it workable into 7,ti5U balance-springs, which will 
realize, at the common price of 2s. 6d. each, £946 5s. the effect of la 
bor alone. 



82 DIVISION OF LABOR. 

The second section consisted of seven or eight per- 
sons, of considerable acquaintance with mathematics, 
whose duty it was, to convert into numbers the formulae 
put into their hands by the first section ; and then to 
deliver out these numbers to the members of the third 
section, and to receive from them the finished calcula- 
tions. These they could verify without repeating the 
work. 

The third section consisted of sixty or eighty persons. 
They received the numbers from the second section, 
and, using nothing more than addition and subtraction, 
returned to that section the finished tables. Nine- 
tenths of this class had no knowledge of arithmetic be- 
yond its first two rules ; and it is remarkable that these 
were usually found more correct in their calculations, 
than those who possessed a more extensive knowledge 
of the subject. The extent of the labor, which was 
thus executed in a remarkably short space of time, may 
be estimated, when it is stated that the tables thus 
formed are computed to occupy seventeen large folio 
volumes. And yet we see that the greatest part of the 
labor was actually accomplished by persons who might 
be employed at very small expense, and who could do 
the work assigned them, as perfectly as those whose 
labor was the most expensive.* 

We thus see the manner in which the productiveness 
of human labor may be increased. 1st. By discover- 
ing the various agents of nature which God has created 
for our benefit; 2d. By applying these agents to the 
service of man; 3d. By so arranging and adjusting hu- 
man industry, that the labor necessary to be employed, 
may operate with the greatest possible advantage. In 
one or other of these methods, must every improvement 
in the physical condition of mankind operate. And 
civilization advances just in proportion as all of them 
combined are brought to bear upon the work of produc- 
tion ; that is, of creation of objects of desire, in other 
words, of means for human happiness. 

* Babbage on Economy of Machinery. 



LIMITATIONS TO DIVISION OF LABOR. 83 



SECTION III. 

LIMITATIONS TO THE DIVISION OF LABOR, BOTH 
INDIVIDUAL AND NATIONAL. 

We now proceed to another branch of the subject ; 
the Limitations of the Divisions of Labor. These 
may be considered in reference to individuals, and to 
nations. In so far as the individual is concerned, 
these limitations arise from three causes. 1st. The 
Nature of the process ; 2d. Deficiency of Capital ; 
and 3d. Demand. 

1 . From the nature of the Process. Every process 
can be analyzed into its ultimate elements ; that is, into 
the various simple processes of which it is composed. 
Thus in pin-making the straightening of the wire is one 
operation, the cutting it into equal lengths is another, 
the sharpening of the points is another, the heading of 
the pin is another, &c. But when we have reduced the 
operation to its simple elements, we can proceed no 
further. Hence, here is our necessary limit ; for it is 
no division of labor to employ two men to perform pre- 
cisely the same operation. Hence an establishment, 
which carries division to this limit, will be able, from 
what has been said, to undersell another which does 
not carry it to the same degree of perfection. And 
hence, in, establishing a manufactory, it is important so 
to adjust the number and kind of workmen, that, when 
the different operations of a process have been assigned 
to different persons, these persons may be in such pro- 
portions as exactly and fully to employ each other. 
The more perfectly this is accomplished, the greater 
will be the economy. And, this having been once as- 
certained, it is also evident that the establishment cannot 
be successfully enlarged, unless it employ multiples of 
this number of workmen. 

2. Division of labor may be limited by deficiency of 
Capital. Division of labor, in manufactures, cannot 



84 LIMITATIONS TO DIVISION OF LABOR. 

be carried on, unless the proprietor have sufficient capi- 
tal to employ, at the same time, all the persons neces- 
sary to such a division, and to keep them so employed, 
until the proceeds of their work enable him to furnish 
them again with fresh material. This is, of course, a 
considerable outlay, and supposes a considerable accum- 
ulation of the proceeds of pre-exerted industry. Hence, 
in a poor or in a new country, there can be but little 
division of labor. No one has more than enough capi- 
tal to employ himself, and, perhaps, one or two labor- 
ers ; and hence, each individual performs all the opera- 
tions of each process, and frequently those of several 
processes. The same individual is the farrier, black- 
smith, cutler, and, perhaps, wheelwright, for a whole 
settlement. To illustrate this by a single instance : If 
a nailer be able to purchase no larger amount of iron 
and coal than he can use in the manufacture of nails in 
a day, he must perform all the parts of the process him- 
self ; and, of course, must labor very disadvantageously. 
As soon, however, as he is able to double his capital, 
he may employ another person to work with him, and 
they may then introduce a division of labor. When he 
has tripled his capital, he may employ another workman, 
and carry his division still further. He may thus go on 
until he has reduced the process to its simplest elements. 
When he has gone thus far, the accumulation of his 
annual capital will enable him to invest something in 
fixed capital. He will thus be able to purchase some 
of the simpler machines, by which some of the parts of 
his process may be executed. To these he will add 
others, as he advances in wealth, until his accumulated 
means enable him to combine them into one machine, 
for completing the whole process. Thus he becomes 
a manufacturer, and derives the larger part of his rev- 
enue, from the use of his fixed capital. At every step 
his gains will be greater, and at the same time the price 
of his product will become less. Tt is not pretended 
that all these changes always, or frequently, take place 
within the lifetime of a single individual. The pro- 
gress of society is not generally so rapid. Yet they 



LIMITATIONS TO DIVISION OF LABOR. 85 

sometimes occur in the manner which I have stated. I 
give the illustration, to show the tendency of things, 
and the power of accumulated capital. But, whether 
the results are comprised in the lifetime of one, two, or 
three individuals, the principle is the same. 

3. Division of labor may be limited by the demand 
for the article produced. Suppose that, in a given dis- 
trict, there is a demand for one hundred pounds of nails 
per day, and that these can be made by two men. If 
three men could, by division of labor, make two hun- 
dred pounds per day, there would be but small gain, 
either to the workmen or to the public ; because these 
men would, of course, lie idle half of the time, and for 
this time they must be paid, as well as for the time in 
which they were employed. Or, if they did not lie 
absolutely idle, that portion of their time, which was 
employed on other labor, would be of comparatively 
small value ; and they, by attending to other business, 
would lose the skill which complete division of labor 
confers ; and which is one of its principal benefits. The 
case is still stronger, if we take into view the fact, that 
division of labor supposes a large investment of fixed 
capital, and that those who are educated to any manufac- 
turing business, can rarely employ themselves upon any 
thing else. If the laborers at any of our manufactories 
were employed only half the time, their wages must be 
doubled ; for their families must be supported, one day 
as well as another, and thus the interest of the whole 
investment must be charged upon half the quantity of 
product. These causes, together with the loss of skill 
in workmen, would more than double the price of prod- 
ucts, and would, of necessity, carry back the division 
of labor to its less perfect state. 

But this- demand must depend upon several circum- 
stances. The most important of these are the following : 

1. The number of the consumers. When the number 
of inhabitants is small, as in a newly settled country, or 
in an isolated situation, the demand must, of course, 
correspond to their number. One hundred men will re- 
quire but one tenth as many hats or shoes as one thou- 



86 LIMITATIONS TO DIVISION OF LABOR. 

sand men. It is on this account that wealth accumulates 
most rapidly on navigable waters, because the market of 
the producers is not limited to themselves, but may be 
easily extended to other places. 

2. By the wealth of the inhabitants. Demand does 
not signify simple desire for an article, but desire for it, 
combined with the ability and willingness to give for it 
what will remunerate the producer. Hence, the greater 
the ability, in a given population, to remunerate the pro- 
ducer, the greater will be the demand. The demand 
for hats, in a population of one thousand men, would be 
limited to those persons in that population who were able 
to buy a hat. The larger the proportion of such indi- 
viduals, the better it would be for the hatter, and for 
every other producer. Hence we see, that every indi- 
vidual is interested in the prosperity of every other indi- 
vidual in the community. 

3. By the cost of the article. The greater the cost 
of the product, the smaller will be the number of per- 
sons who are able to purchase it. Hence, the less will 
be the demand ; and hence, also, the less opportunity 
will there be for division of labor. And, besides, the 
greater the cost of the article, the greater amount of 
capital is required in order to produce it by division of 
labor. Hence, this cause operates in two ways to pre- 
vent the employment of this means of effecting the re- 
duction of price. Thus, if a community consist of one 
thousand men, and of these, one hundred be worth one 
thousand dollars per year ; four hundred be worth five 
hundred dollars ; and the remainder be worth but two 
hundred and fifty dollars per year ; and an article be 
produced within the reach of only the first of these class- 
es, it can have but one hundred purchasers ; if it come 
within the reach of the second class, it will have five 
hundred ; and if it come within the reach of the third 
class, it will have one thousand purchasers. Hence it 
is, that division of labor is but sparingly used in the 
manufacture of rich jewelry, and in articles of expensive 
luxury ; while it is so universally used in the production 
of all articles of common use. Hence we see, that the 



LIMITATIONS TO DIVISION OF LABOR. 87 

benefits of the use of natural agents and of division of 
labor, are vastly greater and more important to the mid- 
dling and lower classes, than to the rich. These means 
of increased production, reduce the cost of the neces- 
saries and of the essential conveniences of life to the 
lowest rate, and, of course, bring them, as far as possi- 
ble, within the reach of all. 

4. By facilities of transportation. This is evident, 
from what has been said. The cost of an article de- 
pends not only on the cost of its original production, 
but also upon the cost necessary to bring it to the con- 
sumer. Coal may be very cheap at a coal mine, but if 
it must be borne on the shoulders of men to the consu- 
mer, it would, at a [exv miles from the mine, become so 
dear, that no one would be able to use it. The demand 
would be so small, that there would be no profit either in 
investing capital in the machinery, or in employing di- 
vision of labor to raise it from the mine. But if horses 
be used to transport it to the consumer, the demand 
will increase. Again, if, for horses, canals and railroads 
be substituted, it will become cheap, and the demand 
will increase still more ; and, with every such improve- 
ment, that circle of consumption expands, of which the 
mine is the centre. The same principle applies to man- 
ufactures, specially those of iron or heavy ware, and it 
applies just in proportion as transportation forms a large 
or small" part of the cost to the consumer. And thus, 
in general, we see the principle on which facilities for 
internal communication improve the condition of both 
the other branches of industry. For this reason, the 
price of land and grain, rises in a district through which 
a canal or a railroad passes ; and, for the same reason, 
manufactories may at one time be successfully established 
in situations where they at another time, would have been 
useless, if not ruinous to the proprietor. And, still more 
generally, we see the manner in which all the branches 
of labor assist each other. A railroad or a canal can 
never profitably be constructed in a country where there 
is nothing to be transported. But where agriculture, 
manufactures, and commerce are productive, and hence 



88 DIVISION OF NATIONAL LABOR. 

require a large amount of transportation, there, these 
facilities are immediately in demand. Were Liverpool 
and Manchester to decline, of what use would be the 
railroad between them ? And, on the other hand, the 
railroad between them, by reducing the cost of all arti- 
cles bought and sold, diminishes the cost of living in 
both places, enables the producer to come into market 
with greater advantages, increases the profit in all kinds 
of industry, facilitates the accumulation of capital, and 
thus adds greatly to the annual revenue of both cities. 

II, I have thus far considered the division of labor as 
it exists among the inhabitants of the same place, and in 
the same situation. The same principle, however, ap- 
plies to people of different districts. Here it is not 
merely a matter of choice, but, in a great measure, of 
necessity ; that is, it is required by the very conditions 
of our being. 

It is manifest, that the different portions of the same 
country possess different facilities for producing the ob- 
jects of human desire. No district possesses advantages 
for producing every thing ; but almost every district 
possesses peculiar facilities for producing something. 
Now, natural advantages are clearly nothing more than 
means of increased productiveness of labor in the crea- 
tion of any particular product. If one soil will produce 
forty bushels of wheat to the acre, with the same labor 
that another will produce twenty, the labor upon the first 
is twice as productive as that upon the second ; that is, 
the owner of the one has a machine by which he can, 
with the same labor, produce twice as much as his 
neighbor. But perhaps the soil which will produce only 
twenty bushels of wheat, will produce forty bushels of 
corn per acre, while the other soil will produce only 
twenty. This second soil is, therefore, an instrument 
which gives a double productiveness to labor in the rais- 
ing of corn. Now, it is manifest, that if each one de- 
votes himself to the production of that for which nature 
has given him peculiar facilities, his amount of produc- 
tion will be greater, he will himself be richer, and the 
whole community will be supplied at a diminished cost. 



DIVISION OF NATIONAL LABOR. 89 

Suppose that each occupied twenty acres, and each pro- 
duced the crop for which he had the greater advantages ; 
the result would be 20X40 = 800 of wheat, and the 
same of corn ; =800 bushels of wheat and S00 of corn. 
Suppose, again, they divided their crops, and each ap- 
propriated ten acres to wheat and ten to corn ; the result 
would be, 10X40 = 400 of wheat, and 10X20 = 200 of 
corn ; and 10X40 = 400 of corn, and 10X20 = 200 of 
wheat ; that is 600 of wheat and 600 of corn ; that is, 
there would be 600 instead of 800 bushels of each 
raised, and the loss to both, and to the community, 
would be 200 bushels of each a year. By so much 
would they both be poorer than by devoting themselves 
wholly to that product for which each had the greatest 
natural advantages. 

Or, to take another case. Suppose one district rich 
in soil, and adapted to the production of wheat, but level 
and far inland, and, therefore, unadapted, by position, 
and want of the proper natural agents, to the production 
of manufactures ; and another district, on the sea-board, 
hilly and sterile, adapted to manufactures, but unadapted 
to the culture of wheat. On the first, with one day's 
labor, a man may raise two bushels of wheat, but could 
produce but four yards of cloth. On the other, by the 
same labor, a man can produce twelve yards of cloth, 
but can raise but one bushel of wheat. Now, it is man- 
ifest, that by each district's devoting its labor to that 
kind of production, for which it has the greatest natural 
facilities, the production of the whole country will be 
increased. It is also evident, that a man in the wheat 
district will provide himself with cloth at a cheaper rate, 
by raising wheat, and procuring cloth by exchange, than 
by manufacturing it himself; and on the other hand, that 
the manufacturer will provide himself with wheat, at a 
much cheaper rate, by making cloth, than by raising 
wheat himself. Thus, by this form of division of labor, 
the productive power of both is increased ; their desires 
are gratified at the expense of less labor ; and thus, both 
are rendered richer and happier. 

All this seems obvious, if only the several districts 



90 DIVISION OF NATIONAL LABOR. 

of the same country be compared. And it is obvious, 
because every one perceives that God has bestowed upon 
different districts, of the same country, different advan- 
tages, which it is for the interest of that country that 
each district should improve to the utmost. But every 
one may see, that the same principles apply to different 
nations inhabiting the different quarters of the globe. 
The separation of the earth into warring nations, is noth- 
ing but the arbitrary work of man ; it alters neither the 
qualities nor the relations which God has given to things, 
nor the laws under which he has constituted man. If a 
man own a farm, of which one part is suited only to 
tillage, and another part only to grazing, and he divide 
it, and sell the pasture land to his neighbor ; this does 
not alter the nature of the soil. Will it not be just as 
profitable to appropriate each part to the purpose for 
which God designed it, after the purchase, as before ? 

Every man needs, for the gratification of his innocent 
desires, nay, for his conveniences and even necessaries, 
the productions of every part of the globe. To be 
convinced of this, we have only to enumerate the arti- 
cles which furnish our houses, the food that covers our 
tables, and the raiment which clothes our bodies. How 
greatly would all our means of happiness be diminished, 
were we deprived of the iron, the furs, and the hemp of 
the North ; the coffee, teas, sugar, rice, fruits, and spi- 
ces of the South ; or the wool, the wheat, and the man- 
ufactures, of temperate climates. Every one must be 
convinced that the happiness of every man is increased 
in proportion as he is furnished with the greatest number 
of these objects of desire ; and furnished with them, in 
their greatest perfection, and at the cheapest rate. 

But, it is evidently the will of our Creator, that but 
few of these objects, every one of which is necessary 
to the happiness of every individual, should be produced 
except in particular districts. Others, if they can be 
produced in several places, can be produced much more 
cheaply, and in greater perfection, in some places, than 
in others. Every part of the globe possesses peculiar 
advantages for the production of something ; but no part 



DIVISION OF NATIONAL LABOR. 91 

possesses advantages for the production of every thing. 
Hence, we see, on the principle illustrated above, that 
the annual production of the globe will be greatest ; that 
is, there will be the largest amount falling annually to 
the share of every individual ; that is, every individual 
will be richer and happier, when each portion of the 
globe devotes itself to the creation of those products for 
which it has the greatest natural facilities. If a man in 
New York can produce, by one day's labor, one hun- 
dred pounds of (lour, but could not produce more than 
one ounce of coffee ; and a man in Cuba can produce 
twenty-five pounds of coffee, but cannot produce more 
than one pound of flour, and they exchange, as we have 
before seen they must exchange, labor for labor : the 
one will produce, by a day's labor, twenty-five pounds 
of coffee, instead of an ounce ; and the other, one hun- 
dred pounds of flour, instead of a pound. Is not this 
better than for the New York farmer to raise his coffee 
in a hot-house, at the expense of a day's labor for an 
ounce ; and the West Indian to raise his wheat on the 
mountains, at the expense of a day's labor for a pound. 
Such are the advantages of that division of labor sug- 
gested by geographical position. 

And the final cause of all this is evident. God in- 
tended that men should live together in friendship and 
harmony. By thus multiplying indefinitely their wants, 
and creating only in particular localities, the objects by 
which those wants can be supplied, he intended to make 
them all necessary to each other ; and thus to render it 
no less the interest, than the duty of every one, to live 
in amity with all the rest. 

Nor is the application of this principle confined to 
geographical localities. The simple fact that a nation 
possesses facilities, be they either natural or acquired, 
for creating any product at a cheaper rate than any 
other nation, is a reason why that nation should devote 
itself to the creation of that product ; and why another 
nation should, for the same reason, improve its own 
peculiar advantages. Thus, there are certain states of 
society, and a certain amount of accumulation of cap- 



92 DIVISION OF NATIONAL LABOR. 

ital, most favorable to the creation of certain products. 
A nation in this state, and with this accumulation, can 
furnish these products cheaper than her neighbors ; and 
this is a reason they should purchase them of her. 
Could not one of our old States supply one of the new 
States with manufactures, cheaper than the new State 
could produce them itself ? And is not this a reason 
why the new State should procure them by exchange, 
rather than by direct production ? Is it not cheaper for 
an Indian to buy a rifle of an European, than to attempt 
to make one for himself? 

This is, however, by no means to assert that such 
arrangements and relations are to be permanent. As 
a country accumulates fixed capital, it creates its own 
facilities for creating almost every kind of manufactured 
product. One nation will naturally begin to do this at 
the same point of accumulation at which another began 
to do it. And the way in which to arrive at this point 
the soonest, is to become rich as fast as possible ; that 
is, to buy as cheap as we can, or, in other words, to 
procure, annually, as many objects of desire as possible, 
for a given amount of labor. A tribe of Indians would 
much sooner be able to make rifles for itself, by pur- 
chasing, at first, rifles of an European, than by deter- 
mining that it would never use rifles, until it could man- 
ufacture them for itself. As the use of a rifle would 
render industry more productive, and thus render the 
tribe richer, it would bring them one step nearer to that 
degree of accumulation, at which they might begin to 
make rifles for themselves. But the resolution not to 
purchase of others, would have no such tendency, inas- 
much as it would, do nothing whatever towards accum- 
ulating production ; but would, on the contrary, shut 
them out from the very means offered them for most 
rapidly benefiting their condition. 

To sum up what has been said. It will be seen that 
production will be increased ; that is, men will be 
richer, and therefore may be happier, as the following 
conditions are complied with : 

I. As the laws of nature, designed by our Creator 
for our benefit, are understood ; 



EFFECTS OF INCREASED PRODUCTIVENESS. 93 

2. As the means are devised for availing ourselves, 
in the most successful manner, of the utility of these 
laws ; 

3. As the human labor necessary to be expended, is 
so arranged as, with a given expenditure, to produce the 
greatest and most perfect result ; and 

4. As the inhabitants of the earth, in different locali- 
ties, devote themselves most exclusively to the produc- 
tion of those objects of desire, for the production of 
which they have received, either directly or indirectly, 
from their Creator,, the greatest facilities. 

Or, still more generally, production will be abundant ; 
that is, man will enjoy the means of physical happiness, 
in proportion to his individual industry, both of body 
and mind ; and to the degree of harmony and good 
feeling which exists between the individuals of the same 
society ; and also between the different societies them- 
selves. 



SECTION IV. 

EFFECTS OF THE INCREASED PRODUCTIVENESS OF 
HUMAN INDUSTRY. 

This subject has been already so frequently alluded 
to, and all the points on which it depends, so distinctly 
stated, that it will not be necessary to examine it so 
fully, as might otherwise be required. 

The result of industry applied to capital is product, 
value, or the means of gratifying human desire. The 
result of increased productiveness of human industry, is, 
with the same labor, increased product, value, or means 
of gratifying human desire. That is, in general, in- 
creased productiveness is equivalent to increased means 
of human happiness. This simple statement would 
seem sufficient to explain the whole subject. In order, 



94 EFFECTS OF INCREASED PRODUCTIVENESS. 

however, to obviate any objections that may arise, we 
will proceed to show its practical operation, by several 
illustrations. 

Take the case of a single individual. Suppose a 
man, by the same amount of labor that he spent last 
year, to be able this year to create twice as much value. 
Suppose that a farmer has twice as large a harvest ; 
that is, that his instrument is twice as good this year as 
it was last year. The result is, he will be able to 
satisfy the desire which that product gratifies, twice as 
abundantly as he did last year. He will have more to 
exchange with other producers, and hence he will be 
able to gratify other desires more abundantly. He will 
be able to make exchanges which were before out of his 
power ; hence, he will be able to add to his mode of 
living, new means of happiness. And, on the other 
hand, as he is able to make exchanges with others with 
whom it was before impossible, others, in return, are 
able to avail themselves of his product or means of hap- 
piness, who were before unable to do so. Hence, he 
is not only happier himself; but the very means, by 
which he becomes so, render him the instrument of 
greater happiness to others. Hence, it is a benefit to a 
whole neighborhood, for a single member of it honestly 
to become rich. In other words, increased productive- 
ness, in one branch of labor, increases productiveness 
in every branch of labor. 

Let us call this first individual A, and suppose that 
before the productiveness of his labor had been in- 
creased, he exchanged with another individual, B., on 
equal terms. If the labor of A and B were 10 per 
day, they would exchange with each other at the rate of 
10 for 10. But, suppose now, that by some new in- 
vention, A's labor produced 20, per day. He would 
offer to exchange on the same terms as before, but he 
would offer 20, and expect from B, 20 in return. But, 
in consequence of the inferior productiveness of B's 
labor, he would not be able to purchase so much ; he 
could afford to buy only 10, as before. A, therefore, 
in order to induce him to exchange, that is, to buy, 



EFFECTS OF INCREASED PRODUCTIVENESS. 95 

would abate his price ; that is, would offer to exchange 
on better terms, and would oiler him at the rate of 20 
for 15, or in some such proportion. What B would not 
purchase at the rate of 10 for 10, he might be willing to 
purchase at the rate of 15 for 20. Thus, we see, they 
would, in this case, share the benefit between them. 
But let the labor of B now be increased in productive- 
ness, so that it shall be equal to that of A ; that is, be 
also at the rate of 20 per day. They will now exchange 
at the same rate as before ; that is, at the rate of 20 for 
20, with this difference, that for one day's labor, they 
will both have twice as many objects of desire as be- 
fore, or as many objects of desire, with half a day's la- 
bor ; that is, both will be twice as rich as before. Thus, 
the increased productiveness of B, is now a benefit to 
A, inasmuch as he now receives 20 for 20, when, be- 
fore, he only received 15 for 20. Now it needs but a 
little reflection to perceive, that the case of A and B, 
is the case of the whole community. 

But the case is made still stronger, when the effect 
of competition is taken into the account. Let the pro- 
ductiveness of labor in any department be ever so great, 
where labor and capital are free, competition will always 
reduce profit in one department to the same average per 
cent, that it affords in other departments. Hence, let 
the productiveness of labor and capital, in any one mode 
of employment, be ever so great ; interest and wages, 
in that employment, will be no higher than they are, 
other things being equal, in other employments. That 
is, while the capitalist and the laborer receive the same 
interest and wages as the rest of the community ; in other 
words, while the community pay no more for this capi- 
tal and labor than they pay for any other, they receive a 
greater amount of value in exchange, and, as much 
more, as the productiveness of that labor and capital 
has been increased. Thus, capital and labor in the cot- 
ton manufacture is not better paid, upon an average, than 
in other modes of investment and industry. If it were, 
capital and labor would flow into it, until the equilibrium 
was restored. But, while this is the fact, we obtain a 



96 EFFECTS OF INCREASED PRODUCTIVENESS. 

yard of cotton cloth for one fourth the price, or at one 
fourth of the labor, at which we formerly obtained it ; 
that is, we receive four times as much as formerly, in 
return for what we pay for the cost and labor of making 
cotton cloth. And thus, over the whole world, every 
instance of increased productiveness, whether it be from 
the use of natural agents, or from the division of labor, 
whether in our own country, or in another country, if we 
choose to avail ourselves of it, enables every man, by 
paying the producer the same as before, to procure a 
larger amount of value ; that is, of objects for the grat- 
ification of desire ; that is, enables every man to become 
both richer and happier. 

The above remarks will, I hope, be sufficient to il- 
lustrate the general principle. As, however, there are 
several consequences resulting from increased produc- 
tiveness of human labor, especially from the use and 
improvement of natural agents, which seem at first view 
to be at variance with what we have here advanced, it 
may be necessary to pursue the results somewhat more 
minutely, and to consider the objection commonly made, 
that the use of labor-saving machinery is prejudicial to 
the interests of the laboring classes. 

It may, however, be here premised, that the objection 
made against natural agents, is not to their use, but to 
their improvement. Men object to the use of a spinning 
jenny, but not to the use of a spinning wheel. They 
dislike a rake by horse power, but do not dislike a rake. 
But every one must see, that this sort of objection, if it 
be founded in truth, is by no means sufficiently exten- 
sive. A spinning wheel, or a hand loom, or a hand 
rake, is a labor-saving machine ; and it involves the use 
of natural agents, just as truly as a spinning jenney, a 
power loom, or a horse rake. If the use of natural 
agents be injurious, we should abandon them altogether, 
and spin, and weave, and rake, with our fingers. But 
if this would be unwise, and it be conceded that we 
must use natural agents, in some form or other, why not 
use the best that we can procure ; that is, the best that 
God has given us ? If, as all must allow, the use of 



EFFECTS OF INCREASED PRODUCTIVENESS. 97 

them, up to a certain point, has conferred an incalcula- 
ble benefit, what reason have we to suppose, that addi- 
tional improvement in the use of them will not confer 
still additional benefit. 

But, passing this, I proceed to consider the effects of 
increased productiveness of labor, both upon Producers 
and Consumers. 

I. The effects of natural agents upon Producers. 

These are either immediate, or ultimate. 

1. Immediate. It is said that every improvement in 
machinery enables the work to be done by fewer labor- 
ers, and hence many persons are thrown out of employ- 
ment ; and that every change in the manner of labor, 
deprives many persons of the use of that skill, which is 
their whole means of subsistence. 

So far as change in the manner of labor is concerned, 
but little need be said, as this is but a temporary incon- 
venience. If a new kind of work is to be done, some 
persons must learn to do it, and must be paid for learn- 
ing. If a man do not choose to learn it, although he 
would be paid for learning it, and be supported by his 
labor, after he has learned it, it is his own fault. He 
may quarrel with his own obstinacy, but he has nothing 
else to blame. Nor is the simple change of employ- 
ment a peculiar hardship. Few men pass through life, 
without, at some time or other, materially modifying 
their mode of employment, from choice, instead of from 
necessity. 

The main difficulty, therefore, which is supposed to 
result from the use of improved methods of production, 
is, that they employ a less number of laborers : and, 
hence, that many laborers are thrown out of employ- 
ment. 

In reply to this it might be asked, what is the testi- 
mony of facts, in this case. Improvements in machine- 
ry have been going on, ever since the creation. Has 
the demand for labor diminished ? Improvements have 
been made in particular districts. Have the laborers 
been, by these means, driven away ; or, on the contra- 
9 



98 EFFECTS OF INCREASED PRODUCTIVENESS. 

ry, are not these the very districts, to which laborers 
inevitably resort for employment ? 

But, aside from this, let us examine the assertion, that 
some laborers are thrown out of employment. Let us, 
however, first endeavor to ascertain how great the evil is. 

1. It is not universal. The improved mode of pro- 
duction always requires some labor, and, of course, a 
portion of those formerly employed must still find em- 
ployment. To these, there results no other disadvan- 
tage, than that of a change in the mode of employment ; 
but with the meliorating circumstances of higher wages 
and less fatiguing labor. 

2. It is, by necessity, gradual. Improvements in 
machinery are made by slow degrees. Although the 
total change may show a greatly increased productive- 
ness of labor, yet no one single change is often, of it- 
self, great enough to produce a great change in the de- 
mand for laborers. Again : Let the change be ever so 
great, it cannot be introduced at once, over a whole na- 
tion. Hence, its effects will be, at first, to reduce the 
wages of those engaged in the former methods of manu- 
facturing. The consequence will be, that no new la- 
borers will learn the trade. This will tend to keep up 
the wages of those who remain in it. And, lastly : If 
a new instrument is to be employed, there must be an 
additional number of men employed to manufacture it. 
This will, of course, require an additional number of 
laborers, who must be withdrawn from other employ- 
ments. This will tend to raise the price of labor, and, 
of course, either to furnish employment for those who 
wish to leave the former occupation, or else to keep up 
the wages of those who choose to remain in it. 

3. The infelicity here spoken of, is no other than that 
which belongs to the tenure of all property whatsoever. 
Skill and labor, as well as capital, are always liable, in 
the revolutions of society, to depreciate in value, or even 
to become worthless. " Riches make to themselves 
wings, and flee away." The wisdom of man, since the 
creation, has never yet discovered any link strong enough 
to connect a human being, indissolubly, with any sublu- 



EFFECTS OF INCREASED PRODUCTIVENESS. 99 

nary possession. The laborer, therefore, in this case, 
holds his property precisely as any other man holds it, 
and is subject to no peculiar hardship. 

Let us however proceed to consider the ultimate ef- 
fects of increased productiveness upon producers. 

1. The producer shares with the rest of the commu- 
nity in ihe benefit derived from increased productiveness ; 
that is, if he earn the same wages as before, he is richer ; 
and, if he earn less, he is less poor than he would have 
been, if no such change had taken place. That is to 
say, money, or, in other words, a given amount of labor, 
is capable of procuring for him a greater amount of ob- 
jects of desire, than before. 

2. From this increased productiveness, there must be, 
throughout the whole community, an increased demand 
jor labor. Suppose a community of one hundred men 
to acquire, by their labor and capital, every year, just 
enough to support themselves, after defraying the ex- 
penses of their several establishments. So long as this 
state of things continued, there would be no increased 
demand for laborers ; for there would be no additional 
capital with which to maintain them. The young must 
therefore emigrate, or else there will be a competition 
among laborers for work, and thus wages will fall. But, 
suppose, that by some new mode of increased produc- 
tiveness, the capital be increased in a single year, twen- 
ty-five per cent., there will then be a demand for the in- 
dustry of a greater number, say twenty-five additional 
laborers ; since this additional capital can produce noth- 
ing, unless it be united with labor. If there be not 
twenty-five additional laborers to be immediately pro- 
cured, wages must rise, because there will be a compe- 
tition among capitalists for labor ; and children and per- 
sons, who with the former prices could earn nothing, 
will now be employed. And, if the demand for labor, 
arising from this increase of capital, could not be thus 
supplied, those engaged in less profitable employment in 
other districts, and other countries, would come in to 
supply the deficiency. Such is always seen to be the 
fact. Population follows capital. It goes where capi- 



100 EFFECTS OF INCREASED PRODUCTIVENESS. 

tal goes, and it concentrates where capital accumulates, 
and it retires when capital retires. And hence, in a 
whole country, where the number of inhabitants is limit- 
ed, the increase of capital must raise the rate of wages. 
And hence, by just so much as increased productive- 
ness of labor increases the amount of capital, it must 
also tend to raise the price of labor throughout a whole 
country. That is to say, the obvious tendency of the 
use of natural agents is, to increase the wages of labor- 
ers in general. 

3. But, the tendency of the use of machinery is to 
increase the wages of laborers, in that very department 
of industry, in which they are employed. The reason 
for this is obvious. Reduction of price produces an 
additional demand, more than sufficient to compensate 
for the diminished amount of labor necessary for the 
creation of the particular product. That this must al- 
ways be the case, can, I think, be conclusively shown. 

Suppose that with the present machinery, one hundred 
men are able to manufacture cotton cloth at fifty cents 
per yard, and that the amount which they produce is 
precisely sufficient to supply the wants of the district for 
which they labor. At this price, no consumers, but 
those worth one thousand dollars per year, can afford to 
purchase cotton cloth, and, of course, the demand is 
limited exclusively to them. Suppose now, that im- 
proved machinery enables fifty men to manufacture as 
large an amount of cotton cloth as one hundred men 
could manufacture before, and the consequence is, that 
cotton cloth is sold at twenty-five cents per yard. It is 
evident, that if the demand be precisely doubled, there 
will be wanted just as many laborers as before ; so that 
their condition will be in no manner altered, except by 
change of labor with its correspondent advantages, and 
the gradual rise of wages, spoken of above. And, it 
is also evident, that every degree of increase of demand, 
beyond what is sufficient to produce this equilibrium 
must be for the benefit of those engaged in this sort of 
labor. 

But it is evident, for several reasons, that the reduc- 



EFFECTS OF INCREASED PRODUCTIVENESS. 101 

tion of price one half, must more than double the de- 
mand for cotton cloth. Thus, when the price was fifty 
cents per yard, only those consumers who were worth 
one thousand dollars per year, could purchase cotton 
cloth; and the sale was, of course, limited to them. 
But now that it is at twenty-five cents, the class w^orth 
only five hundred dollars per year is just as able to pur- 
chase it, as those worth one thousand were formerly. 
Now, if this class were only of the same number as that 
worth one thousand, the demand would be doubled, and, 
of course, the laborer would suffer no injury. But the 
fact is, that the class worth five hundred dollars, is three 
or four times as large as that worth one thousand. 
Hence, by all this difference, the laborer is the gainer, 
and a larger number of laborers is required. But this is 
not all. There are various classes, between those worth 
one thousand dollars and those worth five hundred dol- 
lars, who are now able to purchase the article, as, those 
of nine hundred, eight hundred, seven hundred, and six 
hundred, each one of them being larger than the class 
of first purchasers. All these unite to increase the de- 
mand for this kind of labor. And again : The class 
worth one thousand dollars will now use a much larger 
amount of cotton cloth than formerly ; and cotton cloth 
will now be used for purposes to which it could never 
before have been appropriated, and it will supersede the 
use of many articles, with which it could never before 
have come into competition. All this is to be added to 
the benefits conferred, by the introduction of machinery, 
or by increasing the productiveness of labor, upon the 
laborers in this particular department. Every one must 
see that this benefit, thus resulting from increase of de- 
mand, which is the thing now under consideration, is ab- 
solutely incalculable. 

It may be said, that this is an exaggerated case. I 
answer : The case is not given for the sake of accuracy 
in numbers, but for the sake of illustrating a manifest 
tendency. And, that, in this respect it is accurate, the 
whole history of manufactures bears ample testimony. 
Compare those states of society in which machinery is 
9* 



102 EFFECTS OF INCREASED PRODUCTIVENESS. 

not used, with those in which it is used, and inquire in 
which of them the wages of the laborer are higher, and 
in which his habitation displays the greater number of 
comforts, and in which his shelf is covered with the 
greater number of books. Examine the statistics of 
a particular branch of manufacture, and inquire in what 
period there has been, in proportion to the whole 
population, the greatest number of laborers required in 
that particular manufacture. Has this demand for this 
particular kind of labor been greater in the period when 
natural agents and machinery have been used, or in that 
in which they have not been used ? The answer to 
these questions is given in the history of the progress of 
the cotton manufacture, the manufacture of books, of 
nails, of pins, and every other article of common use : 
and such articles alone are of any consequence in such 
an estimate. This shows that the above illustration is 
true, so far as it teaches the tendency, which is all that is 
necessary in the present case. 

But this is not all. Suppose the demand for cotton 
cloth to be doubled, there must be twice the amount of 
cotton produced ; twice as many vessels built, to trans- 
port it ; twice as many men to navigate them ; besides 
the number of men required to construct the machinery 
necessary to fabricate it. Suppose the number of books 
to be doubled ; there must be twice as much paper made, 
twice as many rags purchased, twice as many types 
made, and twice as much transportation required for the 
supply of the market. All this must add to the demand 
for labor, and must tend, by just so much, to increase 
the wages of the operative. And hence, if these con- 
siderations be compared, it will be seen : 

1. That the introduction of machinery reduces the 
price of articles of consumption ; that is, renders the 
wages, whatever they may be, of the operative, of 
more value. 

2. That, by the more rapid multiplication of capital, 
it produces a greater demand for labor in general, that 
is, it makes the wages of all labor greater ; and 

3. That its tendency is to create an increased demand 



EFFECTS OF INCREASED PRODUCTIVENESS. 103 

for labor ; that is, to produce a rise of wages in that de- 
partment of industry, into which natural agents are 
specially introduced ; and it does this according to the 
degree in which they are introduced. That is, in gen- 
eral, the introduction of machinery renders the wages of 
the laborer more valuable ; it raises the wages of labor 
in general, and raises the wages of labor specially, in 
that department in which natural agents are employed. 
What any man can reasonably ask for, more than this, 
I do not distinctly perceive. 

II. The effects of increased productiveness upon 
consumers may be easily explained, on the principles al- 
ready illustrated. I need not, therefore, enlarge upon this 
subject, as it has already been so frequently alluded to. 

1. By increased productiveness, every consumer is 
richer ; that is, he is able, by the same amount of labor, 
to procure a greater amount of the objects of desire. 
This is evidently the same thing to him, as though his 
income were increased. If I am able, this year, with 
two hundred dollars, to purchase as much as I could 
purchase last year for four hundred dollars, and I can 
earn two hundred dollars, as easily as before, it is pre- 
cisely the same thing, as if, at the former prices, my 
wages had risen from two hundred to four hundred 
dollars. 

2. Production is more perfect. This has already 
been illustrated, as one of the effects of the use of ma- 
chinery ; that is, the consumer not only obtains more of 
the same article for the same sum of money, but he also 
obtains a better article. Every one must have observed, 
that calicoes, crockery, and many other articles of ordi- 
nary consumption, are not only much cheaper, but also 
much more beautiful, than they were a few years since. 

3. A vast number of articles is thus added to the 
means of happiness of the human race, of which, other- 
wise, they must, from necessity, have been deprived. 
All that we possess, above the comforts of the naked 
savage, is the result of the use of natural agents, and of 
division of labor ; that is, of the increased productive- 
ness of human labor. 



104 EFFECTS OF INCREASED PRODUCTIVENESS. 

4. Nor is this all. While all the labor of man is 
necessary to support mere physical existence, there can 
be no opportunity for intellectual cultivation. As soon, 
however, as he arrives at that condition of productive- 
ness of labor, in which he is able to provide for his phys- 
ical wants, with less than all his time and effort, oppor- 
tunity is afforded for intellectual development. At this 
point, commences the dawn of intellectual improvement. 
As increased productiveness affords more abundant lei- 
sure, improvement advances. As soon again, as, by 
improved intellectual power, man begins to discover and 
apply the laws of nature, a vast accession is made to the 
power of human productiveness. Henceforth, these 
two forces conspire to assist each other. Increased pro- 
ductiveness allows of increased time for investigation, 
discovery, and invention ; and discovery and invention 
increase the power of productiveness. The more ac- 
tively these act and re-act upon each other, the more 
rapid is the progress of society, and the more rapidly 
accelerated is the movement of civilization. 

If this be so, we see how puerile is 'he prejudice 
which frequently exists against the use of labor-saving 
machinery since, the introduction of such machinery, 
more than any thing else, tends permanently to improve 
the condition of the laborer. We see, also, how 
groundless is the opinion, that education and science are 
without practical benefit, and that philosophers and stu- 
dents are merely a useless burden upon the commu- 
nity ; since it is knowledge which has given to us all the 
advantages which we possess over savages, and it is the 
application of that knowledge, which furnishes employ- 
ment for nine tenths of the whole community. We see, 
also, how short-sighted is that national selfishness, which 
desires to limit and restrict the intercourse between na- 
tions ; since it is for the interest of each nation to im- 
prove, to the utmost, its own advantages, and to pro- 
cure, by exchange with other nations, those productions 
for the creation of which it possesses, by nature, inferior 
facilities. 



105 



CHAPTER THIRD. 

OF THE LAWS WHICH GOVERN THE APPLICATION OF 
LABOR TO CAPITAL. 

We have thus far, considered capital and labor, sep- 
arately, and have endeavored to analyze the nature and 
functions of each. It is manifest, however, that we 
have not yet exhausted the subject. In many countries, 
a vast amount of capital and of labor has never yet been 
employed. In other countries, capital and labor have 
been united at different periods, with different degrees 
of success. Hence, while some nations have rapidly 
accumulated wealth, the wealth of others has remained, 
for ages, stationary ; and in others, it has diminished. 
The most fertile soils of Europe and Asia, once the 
garden of the world, now under the despotism of Tur- 
key, scarcely maintain their sparsely settled inhabitants. 
It remains for us, therefore, to proceed with our inves- 
tigation, in order, if possible, to ascertain the laws which 
influence the application of labor to capital. 



SECTION I. 

THE CONDITIONS OF OUR BEING, ON WHICH THE 
LAWS ON THIS SUBJECT ARE FOUNDED. 

In order to arrive at the truth with the greater cer- 
tainty, it will be proper to consider the circumstances 
under which man is placed, with reference to the uni- 
verse around him, so far as this subject is considered. 

1. God has created man with physical and intellectu- 
al faculties, adapted to labor. He has given us a mind, 
adapted to investigate the laws of the universe, and a 
body adapted to perform all those operations by which, 



106 CONDITIONS OF PRODUCTION. 

in obedience to those laws, the objects of desire may 
be produced. 

2. Labor has been made necessary to the attainment 
of the means of happiness. No valuable object of de- 
sire can be procured without it. Intellectual power 
cannot be attained without intellectual discipline ; nor a 
knowledge of the laws of nature, without study. Nei- 
ther physical comforts, nor even physical necessaries, 
can be obtained, unless labor be first expended to pro- 
cure them. The universal law ot our existence is, " In 
the sweat of thy face shalt thou eat thy bread." 

3. Labor is necessary to the healthful condition of 
our powers, both physical and intellectual. Without 
intellectual labor, the mind becomes enfeebled ; and, 
were this labor wholly intermitted, it would sink into 
idiocy or madness. Without physical labor, the body, 
feeble and enervated, becomes a prey to pain and dis- 
ease. 

4. That labor, per se, is pleasant, it is not necessa- 
ry to assert. It is sufficient to our purpose, that it is 
less painful than idleness and the results of idleness. 
The laborer complains of his toil, but deprive him of 
his opportunity for toil, and he becomes miserable. 
When men are, in our penitentiaries, condemned to 
solitary confinement, and labor or idleness are left pure- 
ly to their own choice, they have never been known to 
continue longer than a few days, without beseeching, 
importunately, for work. The veterans who are sup- 
ported at Greenwich Hospital, England, at the public 
expense, wholly without labor, are said to be, in gen- 
eral, very unhappy. The uncontrollable desire of chil- 
dren for some sort of employment, illustrates the same 
truth. Those persons who consider labor as degrading, 
obey the same law of our nature in another form. The 
gymnastic exercises of the Greeks and Romans, and 
the hunting, riding, shooting, and travelling of the mod- 
erns, are nothing more than expensive modes of exer- 
cise or labor. The poor man exercises himself, the 
rich man employs a horse to exercise him. The one 
does expensively and unproductively, what the other 



CONDITIONS OF PRODUCTION. 107 

does without expense and productively. Both equally 
yield obedience to the law of our creation ; and, in 
what manner soever it is obeyed, both reap advantages, 
from the mere fact of obeying it. 

5. On the contrary, the Creator has affixed several 
penalties, which those who disobey this law of their be- 
ing, can never expect to escape. He who refuses to 
labor with his mind, suffers the penalty of ignorance. 
The amount of this penalty may be estimated, by con- 
sidering the blessings, both physical and intellectual, of 
which ignorance deprives us ; and by contrasting the 
comforts of savage with those of civilized nations, where 
the physical effort, made by both, is the same. He 
who refuses to labor with his hands, suffers, besides the 
pains of disease, all the evils of poverty, cold, hunger, 
and nakedness. The results which our Creator has at- 
tached to idleness, are all to be considered as punish- 
ments, which he inflicts for the neglect of this establish- 
ed law of our being. 

6. And, on the other hand, God has assigned to in- 
dustry, rich and abundant rewards. " The hand of the 
diligent maketh rich." " Seest thou a man diligent in 
his business, he shall stand before kings ; he shall not 
stand before mean men." The pleasure, the indepen- 
dence, and the power arising from knowledge, are the 
rewards of intellectual industry. " A wise man is 
strong, yea, a man of understanding increaseth strength." 
And it is only by physical labor, that the riches of the 
earth are appropriated, and the laws of nature made avail- 
able to the happiness of man. At the first there existed 
nothing in our world but the earth, with its spontaneous 
productions, and capabilities, and helpless and defence- 
less man. All that now exists of capital, of conven- 
ience, of comfort, and of intelligence, is the work of 
industry, and is the reward which God has bestowed 
upon us for obedience to the law of our being. 

7. If such be the facts ; if God have given to all men 
faculties for labor ; if he have made labor necessary to 
our happiness ; if he have attached the severest penal- 
ties to idleness, and have proffered the richest rewards 



108 FREEDOM OF LABOR AND CAPITAL. 

to industry ; it would seem reasonable to conclude, that 
all that was required of us, was, so to construct the ar- 
rangements of society, as to give free scope to the laws 
of Divine Providence. If he have excited us to labor 
by sufficient rewards, and deterred us from indolence by 
sufficient penalties, it would seem that our business must 
be, to give to these rewards and penalties their free and 
their intended operation. These, at any rate, should be 
the means first tried, in order to facilitate production ; 
nor should any others be resorted to, until these have 
been tried and found ineffectual. 

The effects of this constitution, under which we are 
placed, will, I think, be fully exerted, in proportion as 
the following conditions are observed : 

1 . As every man is permitted to enjoy, in the most 
unlimited manner, the advantages of labor. 

2. As every man suffers the consequences of idleness. 
And, these being equal, 

3. Labor will be applied to capital, according to the 
ratio which subsists between the whole amount of capi- 
tal and the whole number of laborers ; that is, the great- 
er the ratio of capital to the number of laborers, the 
more active will be their industry, and vice versa. And, 

4. Labor will be applied to capital, in proportion to 
the knowledge which men possess of the advantages 
which they shall obtain by labor ; that is, the greater the 
intelligence, the greater the industry. To these several 
topics, the four following sections of this chapter will be 
devoted. 



SECTION II. 

INDUSTRY WILL BE APPLIED TO CAPITAL, AS EVERT 
MAN ENJOYS THE ADVANTAGES OF HIS LABOR AND 
HIS CAPITAL. 

Although God has designed men to labor, yet he has 
not designed them to labor without reward. Hence, 
when men devise some form of labor, even for exercise, 



DIVISION OF PROPERTY. 109 

they always connect with it some result, as the game of 
the huntsman, or the watering place of the traveller or 
tourist. Thus, also, as it is unnatural to labor without 
receiving benefit from labor, men will not labor continu- 
ously nor productively, unless they receive such bene- 
fit. And, hence, the greater this benefit, the more 
active and spontaneous will be their exertion. 

In order that every man may enjoy, in the greatest 
degree, the advantages of his labor, it is necessary, 
provided always he do not violate the rights of his neigh- 
bor, 1st, That he be allowed to gain all that he can ; 
and, 2d. That, having gained all that he can, he be al- 
lowed to use it as he will. 

I. It is necessary that every man be allowed to gain 
all that he can ; that is, that the arrangements of socie- 
ty be so constructed, that every man be able to render 
his labor, in the highest degree, available to himself. 
This will require, 

1. That property be divided. When property is 
held in common, every individual of the society to which 
it belongs, has an equal, but an undivided and indeter- 
mined right to his portion of the revenue. Hence, 
every one is at liberty to take what he will, and as much 
as he will, and to labor as much or as little as he 
pleases. There is, therefore, under such an arrange- 
ment, no connexion between labor and the rewards of 
labor. There is rather a premium for indolence than 
for industry. In such a case, there will be no regular 
labor, if indeed there be any labor at all ; and, what is 
still worse, even the scanty and spontaneous produc- 
tions of the earth will frequently be gathered before 
they are ripe, since every one fears, that, if he do 
not seize them now, he will never enjoy them at all. 
The forest of an Indian tribe is held in common, and a 
few hundred families barely subsist upon a territory 
which, were it divided and tilled, would support a mil- 
lion of civilized men. The little that it produces to 
him, is the result of division of property. His bow 
and arrows, his wigwam, and his clothing are acknowl- 
edged to be, in the fullest sense, his own. Were these 
10 



110 DIVISION OF PROPERTY. 

to be held, like his land, in common, the whole race 
would very soon perish, from want of the necessaries of 
life. 

On the contrary, as soon as land with all other prop- 
erty is divided, a motive exists for regular and voluntary 
labor, inasmuch as the individual knows that he, and not 
his indolent neighbor, will reap the fruit of his toil. 
Henceforth he begins to create a regular supply of an- 
nual product. With increased skill, this annual product 
increases, and he begins to convert it into fixed capi- 
tal, a form of wealth which could scarcely exist without 
division of property. Every accession to his fixed cap- 
ital renders his labor more productive, and hence it cre- 
ates a stronger stimulus to increased exertion. With 
increased exertion, his annual capital is increased, and a 
greater surplus remains to be changed into fixed capital. 
Thus, increased production stimulates industry, and in- 
creased industry results in more abundant production. 
Thus, division of property, or the appropriation, to each, 
of his particular portion of that which God has given to 
all, lays at the foundation of all accumulation of wealth, 
and of all progress in civilization. 

It is for this reason that property held in common, is 
so generally prejudicial to the best interests of a socie- 
ty. A common, where every one, at will, may pasture 
his cattle, and a forest, from which every inhabitant may 
procure his fuel, are encouragements to indolence, and 
serve to keep a community poor. Thus, also, funds 
left at large for the support of the poor, on which every 
one is supposed to have an equal right to draw, have 
generally been found to foster indolence. Poor laws, 
in so far as they are to be considered a fund for this pur- 
pose, have the same sort of injurious tendency. 

2. But the division of property would be of no avail 
unless the right of property were enforced ; that is, un- 
less every one be protected in the undisturbed possession 
of whatever he has rightfully acquired. As no one will 
labor, unless he knows that he shall reap the fruit of his 
toil, so no one will take the pains to reap the fruit of his 
toil, unless he also know that he will be able to hold it, and 



THE RIGHT OF PROPERTY. Ill 

appropriate it to the purposes of his own gratification. 
And, hence, we see that human labor is exerted in dif- 
ferent countries, very much in proportion as the right of 
property is both understood and enforced. 

The right of property may be violated by the indi- 
vidual or by society. It is violated by the individual, 
by cheating, stealing, robbery, and violation of con- 
tracts. And, universally, just as these crimes prevail, 
production languishes, industry diminishes, and the rich- 
est soil fails to support its few and impoverished inhabi- 
tants. Such was the case in Europe, during the era of 
feudal oppression. There was then no encouragement 
to labor, because no one knew whether he, or a baronial 
tyrant, would reap the fruit of his industry. 

Hence, we see the economical importance of all 
means which shall prevent the individual violation of the 
right of property. These means are two. 

The first is, the inculcation of those moral and reli- 
gious principles, which teach men to respect the rights of 
others as their own, that is, to obey the law of reciproci- 
ty ; and which present the strongest conceivable reas- 
ons for so doing. This is the most certain method of 
preventing the violation of the right of property, inas- 
much as it aims to eradicate those dispositions of mind, 
from which all violation proceeds. It is also the cheap- 
est, as it aims at prevention, which is always more econ- 
omical than cure. Tt is also necessary, inasmuch as 
good laws will never be enacted, or if enacted, will nev- 
er be obeyed, only in so far as there exists a moral char- 
acter in the community sufficiently pure to sustain them. 
In proportion as these are efficacious, all other means 
are needless. Hence, we see the reason why moral 
and religious nations grow wealthy so much more rapidly 
than vicious and irreligious nations. The feeling of per- 
fect tranquillity and security, which a high social morali- 
ty diffuses over a whole community, is one of the most 
beneficial, as well as one of the strongest stimulants to 
universal industry. This is one of the temporal rewards 
which God bestows upon social virtue. And, inasmuch 
as no one can enjoy this reward, simply by being virtu- 



112 THE RIGHT OF PROPERTY. 

ous himself, but only as his fellow citizens also are virtu- 
ous, we see the indication in our constitution, that it is the 
duty, as well as the interest, of every man, to labor to 
render other men more virtuous. 

3. But inasmuch as all men are not influenced in their 
conduct by moral and religious principles, it is necessary 
that aggression be somehow prevented, and violations of 
property, in so far as possible, redressed. Hence, the 
importance of wholesome and equitable laws, of an in- 
dependent and firm judiciary, and an executive, which 
shall carry the decisions of law faithfully into effect. 
Hence the expense, necessary for the most perfect ad- 
ministration of justice, is among the most productive of 
all the expenditures of society. Good law, and the 
faithful administration of it, are always the cheapest law, 
and the cheapest administration of it. The interests of 
man require that law should be invariably executed, and 
that its sovereignty should, under all circumstances, be 
inviolably maintained. 

But the right of property may be violated by society. 
It sometimes happens, that society, or government, 
which is its agent, though it may prevent the infliction of 
wrong by individuals upon each other, is by no means 
averse to inflicting wrong or violating the right of indi- 
viduals itself. This is done, where governments seize 
upon the property of individuals by mere arbitrary act, 
a form of tyranny, with which all the nations of Europe 
were, of old, too well acquainted. It is also done, by 
unjust legislation ; that is, when legislators, how wiell so- 
ever chosen, enact unjust laws, by which the property 
of a part, or of the whole, is unjustly taken away, or 
what is the same thing subjected to oppressive taxation. 

Of all the destructive agencies which can be brought 
to bear upon production, by far the most fatal, is public 
oppression. It drinks up the spirit of a people, by in- 
flicting wrong through^means of an agency which was 
created for the sole purpose of preventing wrong ; and 
which was intended to be the ultimate and faithful refuge 
of the friendless. When the antidote to evil, becomes 
the source of evil, what hope for man is left ? When 



FREEDOM OF INDUSTRY AND CAPITAL. 113 

society itself sets the example of peculation, what shall 
prevent the individuals of the society from imitating that 
example ? Hence, public injustice is always the prolific 
parent of private violence. The result is, that capital 
emigrates, production ceases, and a nation either sinks 
down in hopeless despondence ; or else the people, 
harassed beyond endurance, and believing that their condi- 
tion cannot be made worse by any change, rush into all the 
horrors of civil war ; the social elements are dissolved ; 
the sword enters every house ; the holiest ties which 
bind men together are severed ; and no prophet can 
predict, at the beginning, what will be the end. 

Hence we see the importance to the industry of a 
country, of a constitution which guarantees, to the indi- 
vidual, immunity not only from private, but also from 
public oppression. Wherever this immunity is wanting, 
the progress of a nation in wealth will be slow. It is 
owing rather to the freedom of her institutions and the 
equity of her laws, than to her physical advantages, that 
Great Britain has so far outstripped all other European 
nations in the accumulation of wealth, and in every 
thing that confers social power. It is almost superflu- 
ous, however, to add, that a free constitution is of no 
value, unless the moral and intellectual character of a 
people be sufficiently elevated to avail itself of the ad- 
vantages which it offers. It is merely an instrument of 
good, which will accomplish nothing, unless there exist 
the moral disposition to use it aright. 

To sum up what has been said : Labor will be ap- 
plied to capital, in proportion as every man is allowed 
to gain all that he can ; that is, as property is most per- 
fectly divided ; and as this division is most strictly en- 
forced ; that is, as the right of property is guarded by 
the most equitable laws ; and as there exist the strong- 
est guarantees that these laws will be inviolate, whether 
they relate to individuals or to society. 

II. The second part of the condition mentioned in 
the beginning of this section is, that the individual be 
allowed to use his own as he will. To this, is of course 
10* 



114 FREEDOM OF INDUSTRY AND CAPITAL. 

to be added the condition, that he use it in such manner, 
as not to interfere with the rights of his neighbor. 

A man's possessions are his talents, faculties, skill, 
and the wealth and reputation which these have enabled 
him to acquire ; in other words, his industry and his 
capital. In order that industry be applied to capital 
with the greatest energy, it is necessary that every man 
be at liberty to use them both as he will ; that is, that 
both of them be free. 

And first, of industry. The aptitudes of men for 
different employments are very dissimilar. The choice 
of every man naturally leads him to that employment for 
which he is best adapted. By allowing every man, 
therefore, to employ his industry as he chooses, every 
man will be employed about that for which he is best 
adapted ; and hence, the production of all will be great- 
ly increased, because we thus avail ourselves of the pe 
culiar productiveness of every individual. Nor is this 
all. By allowing every man to labor as he chooses, we 
very greatly increase the happiness of every individual. 
And every one knows that a man will labor with better 
success when his labor is pleasant, than when it is irk- 
some. 

The case is the same with respect to capital. Every 
man is more interested in his own success, than any 
other man can be interested in it. Hence, every man is 
likely to ascertain more accurately in what manner he 
can best employ his capital, than any other man can as- 
certain it for him. If every man, therefore, be allowed 
to invest his capital as he will, the whole capital of a 
country will be more profitably invested, than under any 
other circumstances whatever. And, since, when he is 
left thus at liberty, there will be the greatest gain to the 
capitalist, there will also be the greatest stimulus to his 
industry ; for the stimulus to labor is always in propor- 
tion to the rewards of labor. And, on the contrary, in 
just so far as, by any means, this productiveness is di- 
minished, the stimulus to labor is also diminished with it. 

It may be said that men, if left to themselves, will be 
liable to invest their capital unwisely. Granted. Man 



FREEDOM OF INDUSTRY AND CAPITAL. 115 

is not omniscient, and therefore this liability cannot be 
avoided. The question, therefore, is, how shall it be 
rendered as small as possible. Will a man, who reaps 
the benefit of success and suffers the evils of failure, be 
less likely to judge correctly, than he whose faculties are 
quickened by no such responsibility ? Nor is this all. 
Not only are legislators, who generally assume the labor 
of directing the manner in which labor or capital shall 
be employed, in no manner peculiarly qualified for this 
task ; they are, in many respects, peculiarly disqualified 
for it. The individual is liable to no peculiar biases, 
in making up his mind in respect to the profitableness of 
an investment. If he err, it is because the indications 
deceive him. The legislator, besides being liable to err 
by mistaking the indications, is liable to be misled by 
party zeal, by political intrigue, and by sectional preju- 
dice. What individual would succeed in his business, 
if he allowed himself to be influenced in the manner of 
conducting it, by such considerations ? And must not 
like causes always produce like results ? 

Besides, every man feels, instinctively, that he has a 
right to use his capital and his industry as he pleases, 
provided he interfere not with the rights of another ; 
and that, to restrict him in this use, is injustice. We 
have before said, that nothing paralyzes industry like op- 
pression, and it is as true in this case, as in any other. 
If this sort of interference be violent or frequently re- 
peated, capital and labor, whose motto, like that of Dr. 
Franklin, is, " Where liberty dwells, there is my coun- 
try," will emigrate to some more congenial social atmo- 
sphere. And if the interference be not so intolerable 
as to produce these results, yet, in just so far as it has 
any effect, it is all of this kind, and, by its whole opera- 
tion, must diminish the incitements to industry. 

And, on the contrary, just in proportion as every in- 
dividual is free to employ his industry and capital as he 
chooses, and thus both to receive a larger compensation 
for his labor, and also to labor more happily, will be the 
inducements to industry and to the investment of capital. 



116 FREEDOM OF INDUSTRY. 

If this be so, we see the impolicy of several forms of 
legislative interference, in relation to this subject. 

1. We see what must be the effects of monopolies. 
A monopoly is an exclusive right granted to a man, or 
to a company of men, to employ their labor or capital 
in some particular manner. Such was the exclusive 
right granted to the East India Company, to import into 
the ports of Great Britain, or her territories, the produc- 
tions of all countries east of the Cape of Good Hope. 
Such were the privileges granted formerly by Spain, to 
particular individuals or companies, of importing foreign 
commodities into the ports of her colonies in South 
America. The result of this exclusion was to prevent 
all other persons, except those thus favored, from in- 
vesting their capital in this manner ; and hence, to re- 
duce the value of that capital, by precisely the amount 
of this effect. Nor is this all. Those who hold this 
exclusive privilege, being liable to no competition, may 
charge for their commodities whatever they choose. 
Here is, therefore, a two-fold injustice ; first, the me.ans 
of the consumer are diminished ; and secondly, the 
price which he must pay, is enhanced at the mere will 
of his oppressor. 

2. Hence we see the impolicy of obliging an indi- 
vidual, or a class of individuals, to engage in any labor, 
or to make any investment, contrary to their wishes. 
Thus, we are told that during the French revolution, 
some individuals were punished capitally, for raising cat- 
tle instead of wheat. Men may call this legislation, but 
the true name for it is robbery. To oblige a man to 
raise a crop worth fifteen dollars per acre, when he 
would otherwise have raised one worth twenty dollars 
per acre, is just the same thing as to let him do as he 
pleases, and then rob him of five dollars an acre after- 
wards. The wrong is the more intense, in the former 
case, inasmuch as it is done under the semblance of jus- 
tice, and by men who claim, as the robber does not, 
that they have the right to do it. Such legislation as 
this will, in any country, soon produce a famine. 

3. Another form of injury under this class, is seen in 



FREEDOM OF INDUSTRY. 117 

the restrictions upon industry, formerly, if not now, ex- 
isting in many of the countries of Europe. By these 
regulations, artisans were prohibited the exercise of 
more than one trade ; they were not allowed to exercise 
that trade, unless they had served a prescribed appren- 
ticeship ; nor unless they joined a particular trade-soci- 
ety, and bound themselves to comply with certain restric- 
tions, as, for instance, to sell at particular prices, and 
never to employ beyond a certain number of appren- 
tices. The result of all this oppression is most iniqui- 
tous. It reduces the value of skill and industry, the 
sole estate of the laborer ; and places him in the power 
of those whose interest it is to reduce the supply as 
much as possible, in order to secure to themselves the 
most exorbitant profit. In such cases, a large amount 
of available industry must be kept out of employment ; 
and, of course, production is, to this whole amount, di- 
minished. The tyranny of trades-unions, though ema- 
nating from the people instead of the government, pro- 
duces precisely the same effect. 

4. The same effect is partially produced by any mode 
of legislation, by which, in consequence of favor shown 
to one party, which of course another party must pay 
for, men are obliged to exchange an employment, for 
which they have peculiar facilities, for another which 
they do not prefer, and for which they have not the 
same facilities. The manner in which this would lessen 
the stimulus to industry, has already been illustrated. 
Thus, should our government, believing that commerce 
was more valuable to this country than manufactures, 
lay a tax, sufficient to meet the expenses of the govern- 
ment, upon all American manufactures, in order to in- 
crease the amount of foreign importation, this would 
drive manufacturers out of business and oblige them to 
become merchants and agriculturists. I think that every 
one must see that this would diminish the stimulus to 
industry throughout the whole country. Men would not 
voluntarily engage in manufactures in preference to com- 
merce, unless they found manufactures to be more profit- 
able ; and to oblige them to exchange the one for the 



118 PREVENTION OF IDLENESS. 

other, is, therefore, to oblige them to leave a more pro- 
ductive for a less productive mode of employment. By 
all this difference is the country the loser, and the incite- 
ment to industry diminished. 

5. Hence, we also see the impolicy of laws regulating 
consumption. Such are sumptuary laws ; or those 
which limit the degree of expensiveness in our dress, 
clothing, or equipage. These were formerly common 
in Europe. Such also are laws which forbid or restrict 
the expenditure of money for the purposes of benevo- 
lence, religion, or any thing of this sort. Every one 
must see that one of the incitements to industry, is the 
pleasure which men expect to derive from expenditure. 
Now, if this expenditure be innocent, it matters not 
what sort of expenditure it is. Society has nothing to 
do with it ; and it can in no manner interfere with it, 
without doing injustice, and taking away one of the 
strongest inducements to industry. 



SECTION III. 

LABOR WILL BE APPLIED TO CAPITAL IN PROPOR- 
TION AS EVERY MAN SUFFERS THE INCONVEN- 
IENCES OF IDLENESS. 

If God have made labor necessary to our well being, 
n our present state ; if he have set before us sufficient 
rewards to stimulate us to labor ; and if he have attach- 
ed to idleness correspondent punishments, it is manifest 
that the intention of this constitution will not be accom- 
plished, unless both of these classes of motives are al- 
lowed to operate upon man. We shall, therefore, co- 
operate with Him, in just so far as we allow his designs 
to take effect in the manner he intended. 

Now this result will be accomplished, 

1. By the division of property. When property is 
perfectly divided, and every thing is owned by some 



PREVENTION OF IDLENESS. 119 

one, and every one knows what is his own, nothing is 
left in common. Of course, no man can then obtain 
any thing more than he now possesses, unless he obtain 
it by labor. And as every man has faculties capable of 
labor, and as these are exclusively his own ; and as 
every one, who possesses capital, desires to employ la- 
bor with which to combine it, every man who possesses 
his natural faculties, has the means by which he may ob- 
tain something for his subsistence. The division of 
property is thus favorable to the laborer ; inasmuch as, 
in consequence of it, every one needs his labor, and 
also has something to give him in exchange for it. 

2. But suppose property to be universally divided. 
A man may possess himself, either dishonestly or by 
begging, of the property for which he has not labored. 
The dishonest acquisition of property, as by cheating, 
stealing, or robbery, will be prevented by the strict and 
impartial administration of just and equitable laws. 
Hence, we see that the benefit of such laws is two-fold. 
They encourage industry, first, by securing to the indus- 
trious the righteous reward of their labor ; and, second- 
ly, by inflicting upon the indolent the just punishment of 
their idleness ; or, rather, by leaving them to the conse- 
quences which God has attached to their conduct. Be- 
ing thus thrown upon their own resources, they must 
obey the law of their nature, and labor, or else suffer 
the penalty and starve. 

If any man complain that this is a hardship, he must 
mean that this hardship has reference to our relations 
either to man or to God. So far as our relations to man 
are concerned, there can certainly be no hardship ; for 
every thing that we see is the result of labor, and is 
either the result of the labor of him that holds it, or of 
him who voluntarily parted with it for an equivalent in 
labor. Now, as every thing we see is the result of la- 
bor, the question is, who shall enjoy this result of labor, 
he who has labored, or he who has not. If it be a 
hardship for a man not to enjoy that for which he has 
not labored ; it would certainly be a much greater hard- 
ship for a man not to enjoy that for which he has la- 



120 POOR LAWS. 

bored. So that, the hardship would be greater if the 
system were arranged to suit the complainant, than it is 
now, under the system of which he complains. 

If the hardship turn upon our relations to God ; that 
is, if a man complain because God made him to labor, 
it is a difficulty which the complainant must settle with 
his Maker. We have nothing to do with it. But since 
God has ordained it, we cannot help it, and an indolent 
man has no just cause of grief with his fellow men, if 
they see fit to act according to it. 

II. But men may be relieved from the necessity of 
labor, by charity. It will be understood that I here 
speak of men as poor from indolence, and not by visita- 
tion of God. I do not here refer to the sick, the infirm, 
the aged, the helpless, the widow, the fatherless, and 
the orphan. When God has seen fit to take away the 
power to labor, he then calls upon us to bestow liberally, 
and he always teaches us, that this mode of expenditure 
of our property is more pleasing to him than any other. 
With this mode of charity I have now nothing to do. 
I speak only of provisions for the support of the poor, 
simply because he is poor ; and of provisions to supply 
his wants, without requiring the previous exertion of his 
labor. Of this kind are poor laws, as they are estab- 
lished in England, and in some parts of our own country, 
and permanent endowments left to particular corpora- 
tions for the maintenance of the simply indigent. Now 
such provisions we suppose to be injurious, for several 
reasons. 

1. They are at variance with the fundamental law of 
government, that he who is able to labor, shall enjoy 
only that for which he has labored. If such be the law 
of God for us all, it is best for all, that all should be 
subjected to it. If labor be a curse, it is unjust that 
one part, and that the industrious part, should suffer it 
all. If, as is the fact, it be a blessing, there is no rea- 
son why all should not equally enjoy its advantages. 

2. They remove from men the fear of want, one 
of the most natural and universal stimulants to labor. 
Hence, in just so far as this stimulus is removed, there 



POOR LAWS. 121 

will be, in a given community, less labor done ; that is, 
less product created. 

3. By teaching a man to depend upon others, rather 
than upon himself, they destroy the healthful feeling of 
independence. When this has once been impaired, and 
the confidence of man in the connexion between labor 
and reward 'is destroyed, he becomes a pauper for life. 
It is in evidence, before the committee of the British 
House of Commons, that, after a family has once appli- 
ed for assistance from the parish, it rarely ceases to ap- 
ply regularly, and most frequently, in progress of time, 
for a larger and larger measure of assistance. 

4. Hence, such a system must tend greatly to increase 
the number of paupers. It is a discouragement to in- 
dustry, and a bounty upon indolence. With what spirit 
will a poor man labor, and retrench, to the utmost, his 
expenses, when he knows that he shall be taxed to sup- 
port his next-door neighbor, who is as able to work as 
himself ; but who is relieved from the necessity of a 
portion of labor, merely by applying to the overseer of 
the poor for aid. 

5. They are, in principle, destructive to the right of 
property, because they must proceed upon the conces- 
sion, that the rich are under obligation to support the 
poor. If this be so ; if he who labors be under obliga- 
tion to support him that labors not ; then the division of 
property and the right of property are at an end : for, he 
who labors has no better right to the result of his labor, 
than any one else. 

6. Hence, they tend to insubordination. For, if the 
rich are under obligation to support the poor, why not 
to support them better ? nay, why not to support them 
as well as themselves ? Hence the larger provision there 
is of this kind, the greater will be the liability to collis 
ion between the two classes. 

If this be so, we see, that in order to accomplish the 
designs of our Creator in this respect, and thus present 
the strongest inducement to industry, 

1. Property should be universally appropriated, so 
that nothing is left in common. 
11 



122 POOR LAWS. 

2. The right of property should be perfectly protect- 
ed, both against individual and social spoliation. 

3. There should be no funds in common provided for 
the support of those who are not willing to labor. 

4. That if a man be reduced, by indolence or prodi- 
gality, to such extreme penury that he is in danger of 
perishing, he should be relieved, through the medium of 
labor ; that is, he should be furnished with work, and be 
remunerated with the proceeds. 

5. That those who are enabled only in part to earn 
their subsistence, be provided for, to the amount of that 
deficiency only. 

And hence, that all our provisions for the relief of the 
poor, be so devised as not to interfere with this law of 
our nature. By so directing our benevolent energies, 
the poor are better provided for ; they are happier them- 
selves ; and a great and constantly increasing burden is 
removed from the community. It has been found that 
alms-houses, conducted on this plan, will support them- 
selves ; and sometimes even yield a small surplus rev- 
enue. This surplus, however, should always be given 
to the paupers, and should never be received by the 
public. The principle should be carried out, that the 
laborer is to enjoy the result of his industry. 

For the same reason, penitentiaries and State prisons 
should always be places of assiduous and productive la- 
bor. Idleness is a most prolific parent of crime. If 
the vicious could be accustomed to labor, one half of 
their reformation would be effected. 

Besides, by this means, a great diminution would be 
effected in the expense to the community. There can 
be no reason why a hundred able-bodied men, and such 
are generally the tenants of our prisons, should not both 
support themselves, and pay for the superintendence 
accessary to their labor. In a well regulated prison, 
.hey will always do this. There must, always be some- 
thing deeply culpable in the arrangements of such an 
institution, where this is not the result. 

And thus where a society is so organized, that every 
man is left to suffer the results of idleness ; that is, 



RATIO OF CAPITAL TO LABOR. 123 

where labor is made necessary to the acquisition of every 
thing desirablp, and where the results of that labor are 
most perfectly secured to the laborer, there will exist the 
greatest stimulus to labor, and, of course, production 
will be most rapidly augmented. 



SECTION IV. 

THE GREATER THE RATIO OF CAPITAL TO LABOR, 
THE GREATER WILL BE THE STIMULUS TO LABOR. 

The principle to be considered in this section may be 
thus illustrated. Capital is useless, that is, will yield 
no revenue, unless it be united with labor. A farm will 
yield nothing, unless it be tilled, and the grain harvested ; 
raw cotton and a manufactory will produce nothing, un- 
less there be workmen to labor in it. Hence, every 
man who holds capital, is desirous of uniting it with in- 
dustry, that he may share, with the laborers, the profits 
of the resulting product. On the contrary, he who has 
industry, is desirous of uniting it with capital, because, 
unless he can so unite it, it will yield nothing in return. 
A man can earn nothing by spending his whole time in 
beating the air. Hence, when the number of laborers 
is great ; that is, where labor is abundant, and the 
amount of capital small, there will be a competition of 
laborers for work, and the price of labor will fall ; that 
is, the laborer will receive a less compensation for his 
work. On the contrary, when the number of laborers 
is small, and the amount of capital great, there will be 
competition among capitalists for labor ; that is, the 
price of labor will rise ; and the laborer will receive a 
greater compensation for his work. Thus, we see, the 
greater the amount of capital, in proportion to the num- 
ber of laborers, the greater will be the rate of wages, 
and, of course, the stronger the stimulus to industry. 

It deserves, however, to be remarked, that this prin- 
ciple is liable to some important modifications. Thus, it 



124 RATIO OF CAPITAL TO LABOR. 

is practically true, only in so far as men continue to be 
operated upon by the hope of reward. When this ceas- 
es to operate, and wages are so low as to render the 
utmost amount of labor necessary to avoid starvation, 
men will work more assiduously, the lower the wages ; 
that is, the nearer they are to actual starvation. But, to 
this, there is also a limit. Human beings cannot long 
endure great toil, under the depressing influences of de- 
spair. Many very soon die, and thus a diminished pop- 
ulation again raises the price of labor. Another com- 
mon result of such a condition of laborers, is domestic 
insurrection. Men who have long stood on the borders 
of starvation, become desperate. They know, that by 
no change could their condition be made worse ; hence 
eitpidi rerttm novarum, they unite under any agitator 
who promises them bread ; the whole fabric of society 
is prostrated ; and civil war and anarchy succeed. 

Another modification of this principle, is the follow- 
ing : I have said above, that the stimulus to labor is in 
proportion to the wages of labor. This will be true, 
only of those cases where the facilities of gratifying 
desire are equal. Although wages be high, yet if only 
few objects of desire can be procured in exchange for 
them, there will be wanting one important element in 
stimulating the human being to labor. Hence, the stim- 
ulus to labor will be the most effective, when the wages 
are highest, and when, by means of wages, the greatest 
number of desires can be gratified. 

Thus, in a newly settled country of great fertility, 
wages are high, because a vast amount of land is open 
to cultivation, and a proprietor can afford to give a high 
price for labor. Still, industry is not active in propor- 
tion to the rate of wages, because, the desires which 
can be gratified in a new country are few, and a man can 
procure all that is attainable with a less amount of labor 
than he is able to exert. Hence, the reason why men 
labor so intensely in prosperous seasons, in large cities. 
The remuneration at such times is high, and the desires 
which wealth can gratify are innumerable. A merchant 
in New York, during the season of business, when prof- 



RATIO OP CAPITAL TO LABOR. 125 

its are high, will cheerfully impose upon himself, labor, 
which he knows will, in all probability, ruin his constitu- 
tion ; labor, which, he would not, on any account, im- 
pose upon a slave. 

Hence, we see that the accumulation of capital is 
more for the advantage of the laborer than of the capi- 
talist. The greater the ratio of capital to labor, the 
greater will be the share of the product that falls to the 
laborer. The greater the ratio of labor to capital, the 
greater will be the share of the product that falls to the 
capitalist. Hence, the laboring classes are really more 
interested in the increase of the capital of a country, 
than the wealthy classes. Hence, when one class of 
the community repine at the prosperity of another class, 
they repine at their own mercies, and the means of in- 
creasing their own rate of compensation. 

It is, however, evident, that the accumulation of capi- 
tal, in any nation, does not depend simply upon its annual 
production, but upon the proportion that its annual pro- 
duction bears to its annual expenditure. A country that 
annually expends all its production, let it produce ever 
so much, will never increase its capital. A country that 
produces ever so little, if it annually expend somewhat 
less than its revenue, will be accumulating something ; 
and must, in progress of time, become richer than its 
more highly favored neighbor. This explains the fact, 
that the countries blessed with the richest soils, and the 
greatest natural advantages, have not generally become 
the richest. The result has, within moderate limits, 
been almost the reverse. 

Hence, we see, that every mode of unnecessary ex- 
penditure, whether individual or national, by diminishing 
the annual accumulation of capital, tends directly to 
lower the rate of wages, and thus injure the condition of 
the laboring classes. The millions which are wasted 
and destroyed by intemperance, if saved, would add to 
the capital of a country, and thus increase the demand 
for labor. All unnecessary expenditure, for the main- 
tenance of civil government, has, of course, the same 
tendency. Hence arises, also, one of the most afflicting 
11* 



126 INTELLECTUAL IMPROVEMENT. 

consequences of war. Had the almost incalculable sums 
which Great Britain has expended in wars, for the last 
hundred years, been added to her operative capital, and, 
but for these wars, it would have been so added, all her 
inhabitants would have found, at all times, abundant em- 
ployment, and, at a rate of wages, which would, by this 
time, have banished almost the recollection of poverty 
from her shores. 



SECTION V. 

INDUSTRY WILL BE APPLIED TO CAPITAL, IN PROPOR- 
TION TO THE INTELLECTUAL IMPROVEMENT OF A 
PEOPLE. 

Intellectual cultivation tends to increase the industry 
of a people, in two ways. 1st. By exciting a people 
to exertion ; and, 2d. By directing that exertion. 

1. Intellectual cultivation excites a people to exertion. 
Ignorant men are indolent, because they know neither 
the results that may be accomplished, nor the benefits 
that may be secured, by industry. This is one of the 
most common causes of the great indolence of savage 
nations. An Indian, who knows of no condition better 
than his own, of no covering better than a skin, of no 
habitation better than his wigwam, and of no weapon 
better than his bow and arrow, has no motive to industry, 
beyond what may be adequate to procure these simple 
necessaries. Let him know that, by additional effort, 
he can provide himself with a blanket, and, by a still 
additional effort, that he can exchange his bow and ar- 
row for a rifle, and his wigwam for a comfortable house, 
and you present motives to additional labor. His indus- 
try will thus expand with the occasion. The case is 
the same with a nation, at a more advanced period of 
its history. Hence, the impulse which is always given 
to industry, by any important improvement in the intel- 



INTELLECTUAL IMPROVEMENT. 127 

lectual character of a people. It was a knowledge of 
the conveniences and luxuries of the East, which the 
crusaders brought back to western Europe, that was the 
precursor and the cause of that dawning of improvement 
which succeeded the night of the dark ages. 

2. Intellectual cultivation directs to a profitable end, 
the industry which it has previously excited. 

Agriculture will be successfully prosecuted, only in 
proportion as men are acquainted with the best modes 
and seasons of culture, the laws of vegetable and ani- 
mal physiology, and the probable existence of that de- 
mand which it will be most profitable to supply. 

Manufacturing labor will be successful, in proportion 
as the manufacturer is able, by his knowledge, to avail 
himself of the improvements of other countries, to un- 
derstand the laws of nature, and invent means of apply- 
ing them to his own advantage, and as he is able, by his 
intelligence, to modify his occupation in any manner that 
may be for his interest. 

7Vie Merchant will be successful in proportion as he 
is able to select the most profitable places and times for 
exchange, to foresee the probable alternations of the mar- 
ket, and to avail himself of the fluctuations of capital 
which are always taking place, in various parts of the 
civilized world. 

And, in general, it is evident that, with a given amount 
of labor and of capital, production will be exactly in 
proportion to the knowledge which the operator pos- 
sesses of the laws which govern that department in which 
he labors, and to the degree in which his labor conforms 
to his knowledge. If, then, labor will be in proportion 
to the benefits which it confers ; and if, by knowledge, 
these benefits are increased, we see in what manner labor 
must be stimulated by intellectual cultivation. Thus we 
see how it is, that an intelligent people is always indus- 
trious, and an ignorant people always indolent. Hence, 
one of the surest means of banishing indolence, is to 
banish ignorance from a country. 

But, it is evident, that improvement in knowledge, in 
order to be in any signal degree beneficial, must be uni' 



128 INTELLECTUAL IMPROVEMENT. 

versal. A, single individual can derive but little advan- 
tage from his knowledge and industry if he be surround- 
ed by a community both ignorant and indolent. In just 
so far as other men improve their condition, and become 
useful to themselves, they become useful to him ; and 
both parties thus become useful to each other. This is 
specially the case, where a government is, in its charac- 
ter, popular ; that is, where laws emanate from the more 
numerous classes. In such a case, not only is an intel- 
ligent man not benefited, but he is positively injured, by 
the ignorance and indolence of his neighbors. Hence, 
the reason why every man has a personal interest in the 
intellectual improvement of every one of his fellow citi- 
zens ; and why the education of the whole population 
should be the care of the government ; that is, of the 
whole country. 

The efforts of a government maybe usefully directed, 
in this respect, to two objects. 1st. The increase ; and 
2d. The dissemination of knowledge. 

First. The increase of knowledge. This may be 
promoted in several ways. 

1. By the establishment of colleges, universities, and 
other seminaries of learning. These, I suppose, should 
be furnished by the public, with libraries, apparatus, and 
all the means for instruction, investigation, and discovery. 
They should be so governed, and the remuneration so 
adjusted, that teachers should be placed under the 
strongest stimulus to labor for the promotion of science, 
and to communicate, most successfully, knowledge to 
their pupils. Colleges and universities should, at all 
times, be places of strenuous effort, and vigorous men- 
tal discipline, on the part of both instructors and pupils. 
As soon as they become the places of literary leisure, 
and intellectual indolence, they are not only useless, but 
hurtful ; inasmuch as they retard, rather than advance, 
the progress of science. 

For this reason, I doubt whether endowments, for the 
support of professorships, are useful ; at least, whenever 
they render a teacher's support independent of his own 
exertions. For the same reason, a teacher should not 



INTELLECTUAL IMPROVEMENT. 129 

be remunerated by a fixed salary, but by the sale of 
tickets of admission to his lectures, or by a salary, vary- 
ing with his ability and success. Large foundations for 
the support of students in colleges, if under the control 
of the college itself, so far as they render the number 
of students in no way dependent upon the ability and 
faithfulness of the instructor, will have a tendency to 
remove from him one of the most valuable stimulants to 
industry. 

2. By rewarding those who have been successful in 
the advancement of science. 

1. This may be done, first, Directly, as by bestowing 
premiums, rewards, grants of money, &c, to those who 
have made discoveries of pre-eminent utility. This is 
frequently done by the British government ; and, for 
aught I see, it is done wisely. In this country, however, 
it is, I believe, never practiced. The only rewards 
which we ever confer, are for military or naval service. 
The propriety of those, I by no means, in this place, 
dispute ; yet, I think it would be difficult to show, that 
warriors are the only benefactors of mankind, or that 
Whitney or Fulton did not deserve as well of their coun- 
try, for the invention of the cotton gin and the applica- 
tion of steam to navigation, as they would have done, 
had they captured a fleet on the ocean, or routed a tribe 
of Indians in the forest. 

2. Indirectly, by granting to those who labor in sci- 
ence or invention, the right to derive advantage from 
their discoveries or inventions. This is done by laws of 
copy and patent right. The justice of this provision 
we have elsewhere shown. We here see the manner, 
in which, by stimulating intellectual labor, by hope of 
reward, it tends to increase knowledge, and hence, fa- 
cilitate production. 

Secondly. A government may improve the intellect- 
ual character of a people, by the dissemination of knowl- 
edge. This will be done, so far as provision is made 
for the universal instruction of a people in the elements 
of a common education. The interest of every man 
demands that all his fellow citizens should be able to 



130 BENEFITS OP RELIGION. 

read and write, to keep accounts, to understand geogra- 
phy, and thus possess the means of self-improvement, to 
whatever degree they may be disposed to carry it. 

The effect of such a diffusion of knowledge, has al- 
ready been illustrated at sufficient length. It will be 
necessary here only to allude to the means, by which 
this result may be best attained. 

1- As a stimulus to intellectual improvement, proba- 
bly, the right of suffrage should be restricted to those 
who are able to read and write. 

2. Provision should be made, in every neighborhood, 
for the education of all children under a certain age. 

3. The expenses of this provision may be borne, 
parity^ by a general fund. This fund should, however, 
never defray more than a portion of the expense ; for 
no man values, highly, what he gets for nothing. If a 
fund be raised for this purpose, great care must be taken 
that it be not abused. 

4. Without a fund, the same result will probably be 
better accomplished by obliging every district, contain- 
ing a given number of inhabitants, to provide itself with 
a school, on penalty of a fine to be paid to the school 
districts in its neighborhood, for the purposes of in- 
struction. 

5. To complete this arrangement, it might, probably, 
be desirable that seminaries be provided for the purpose 
of educating teachers for the primary schools. This 
would ensure a supply of instructors, of assured qualifi- 
cations, without which, such a system might not so read- 
ily go into successful operation. 

And now, to sum up what has been said : It will be 
seen that the inducements to labor, and, hence, of 
course, the wealth and means of happiness, in any given 
country, must depend, principally, upon two conditions : 
1st. The degree of its intelligence ; and, 2d. The pu- 
rity of its moral character. 

1 . On its intelligence will depend its knowledge of its 
own advantages, of the laws of nature, and of the means 
by which it may avail itself of those laws, for the promo- 
tion of its own happiness. A nation without knowledge, 



BENEFITS OF RELIGION. 131 

like a blind man in the garden of Eden, might be sur- 
rounded with every thing lovely to the eye or delightful 
to the taste, without ever being able to ascertain, either 
where a single object of desire was to be found, or how 
the possession of it might be secured. 

2. On the moral character of a nation depends the 
justice of its laws, its respect for individual right, secu- 
rity of property, individual and social virtue, together 
with the industry and frugality which are their invariable 
attendants. 

Of these two, the latter is the more important to 
national prosperity. For, where virtue, frugality, and 
respect for right exist, riches will, by natural conse- 
quence, accumulate ; and intellectual cultivation will, of 
necessity, succeed. But, intellectual cultivation may 
easily exist, without the existence of virtue or love of 
right. In this case, its only effect is, to stimulate desire, 
and this, unrestrained by the love of right, must eventu- 
ally overturn the social fabric which it at first erected. 
Hence, the surest means of promoting the welfare of a 
country is, to cultivate its intellectual, but especially its 
moral character. Until this have been done, no perma- 
nent foundation for a nation's prosperity has yet been 
laid. And, if any one will take the pains to examine, 
he will find, that, other things being equal, the wealth, 
and happiness, and power of every nation, are in exact 
proportion to its intellectual and moral character. 

And, here, it may not be amiss to add, that all true 
benevolence may be defended, no less upon principles 
of political economy, than of philanthropy. The circu- 
lation of the Scriptures, the inculcation of moral and 
religious truth upon the minds of men, by means of 
Sabbath schools, and the preaching of the Gospel, are 
of the very greatest importance to the productive ener- 
gies of a country. The argument is very short, but it 
seems very conclusive. No nation can rapidly accumu- 
late or long enjoy the means of happiness, except as it 
is pervaded by the love of individual and social right ; 
but the love of individual and social right will never pre- 
vail, without the practical influence of the motives and 



132 BENEFITS OF RELIGION. 

sanctions of religion ; and these motives and sanctions 
will never influence men, unless they are, by human ef- 
fort, brought to bear upon the conscience. 

The same principles will defend, upon economical 
grounds, the efforts of benevolence on behalf of foreign 
nations. Intelligence, virtue, and equitable laws, will 
have the same effect upon other men, that they have 
upon us. They will render men industrious, frugal, and 
consequently rich, and raise them from a savage to a 
civilized state. Just in proportion as a nation is thus 
transformed, are its products' increased ; the riches of 
the whole world are augmented ; the portion of wealth, 
which falls to the share of each man, is rendered great- 
er ; and the ratio of capital to labor is higher. Just as 
a nation becomes intelligent and rich, its wants are mul- 
tiplied, and the means for supplying them are provided. 
Hence, it becomes a better customer to other nations ; 
it gives an additional impulse to their industry ; and it 
repays them for their products, with whatever God has 
bestowed upon it, which will add to the happiness of 
others. Can any one doubt that Great Britain and 
France reap incomparably greater advantages from each 
other, in their present condition of advanced civilization, 
than either of them would, if the other were in the con- 
dition in which it was found by Julius Cresar ? What 
demand would Great Britain make upon the productions 
of France, -if she were, at this moment, inhabited by 
half-naked savages ? Or again : How much greater ben- 
efits does North America confer upon the world, than it 
would if it were peopled by its aboriginal inhabitants ? 
How great a stimulus would be given to the industry 
of the world, at this time ; and how greatly would the 
comforts and luxuries of men be increased, if Africa 
were peopled by civilized and christianized men ? Now, 
if these things be so ; and that they are so, I see not 
that any one can dispute ; it seems to me, that civilized 
nations could in no way so successfully promote their 
own interests, as by the universal dissemination of the 
means of education and the principles of religion. 



PROTECTING DUTIES. 133 



SECTION VI. 

ON THE EFFECTS OF DIRECT LEGISLATION AS A 
MEANS OF INCREASING PRODUCTION. 

I have thus far said nothing upon the effect of legisla- 
tive enactments, by means of bounties and protecting 
duties, as a means of increasing production. The rea- 
son is, that I have not yet been able to discover in what 
manner they produce this effect. Nevertheless, since 
many persons suppose them to be of great importance, 
it might seem that a discussion of this subject was in- 
complete, if they were passed over in silence. I shall 
devote this section to a consideration of their effects. 

1. Duties of this sort are to be considered apart from 
those levied for the support of government, because 
they are either not necessary for this purpose, or else 
they are levied for a different object. Thus, if five per 
cent, on an import be necessary to the support of govern- 
ment, and ten per cent, be levied, in order to favor, or, 
as it is said, to protect one branch of industry, the addi- 
tional five per cent, is levied for a distinct object, aside 
from that of the support of government. It is only this 
latter part of the duty which we propose to consider ; 
that is, so much of the duty as is levied for the purpose 
of favoring one particular product. 

2. Now, if such a duty have any effect upon the pro- 
ductiveness of a nation, it must be in one of these ways. 
It must either first increase the capital of a country ; or, 
secondly, increase its number of laborers; or, third, 
create a greater stimulus to labor. I think it evident, 
from what has already been shown, that every condition 
which affects production, must exert its influence in one 
of these three methods. 

3. I think it evident, that legislation of this sort can- 
not increase the capital of a country. The capital of a 
country, at any moment, is its present amount of annual 
and fixed capital. Now, a law cannot create capital ; 

12 



134 PROTECTING DUTIES. 

since, if it could, there would be no necessity for any 
other labor than that of legislation ; and, in order to 
grow rich, a nation would have nothing to do but meet 
in public assembly, and spend its whole time in making 
and hearing speeches, and enacting laws. I believe, 
however, that this mode of growing rich, has never been 
found remarkably successful. 

If it be said that, in this manner, we shall attract foreign 
capital to our own country, I answer : this depends not 
upon legislation, but upon the rate of interest, and the 
security of property. If these conditions be more fa- 
vorable here than in another country, capital will flow 
hither. If they be more favorable in another country 
than here, it will flow thither. The system of Great 
Britain has been exclusive, but capital does not go from 
this country to be invested there. 

4. Legislation of this kind cannot increase the actu- 
al number of laborers. The number of laborers is as 
the number of inhabitants. Legislation has never been 
supposed to have any power to create men. It is true, 
population is found always to increase with the increase 
of the means of living ; that is, with the increase of the 
productiveness of labor. Population will increase or 
diminish, just in proportion as a laborer is able to pro- 
cure greater or less wages for a day's labor ; that is, as 
every thing is cheaper or dearer. Whether the tenden- 
cy of duties is to render productions cheap, remains to 
be considered. It must, however, be evident to all, 
that laws do not create human beings ; of course, they 
add nothing to the number of laborers, that is, of human 
beings in a country. 

It may be said, we may thus induce laborers to come 
from other countries. To this it may be answered ; this 
will depend upon the wages of labor. If laborers be 
better paid here than elsewhere, they will come here, 
and not otherwise. Besides, what is called protection 
changes only the mode of labor ; that is, it takes men 
from one mode of labor, to employ them upon another. 
Suppose, then, that it attracts foreign laborers to one 
branch of industry ; it deters those in another branch of 
industry from immigrating. If, for instance, manufactur- 



PROTECTING DUTIES. 135 

ers are protected, this will tend to encourage manufac- 
turers to immigrate ; but it will, in a correspondent pro- 
portion, discourage agriculturists. 

5. If, then, discriminating duties produce any effect 
upon production, it must be by stimulating industry ; 
that is, while the amount of capital and the number of 
laborers remain the same, by stimulating men to labor 
more industriously, and thus to create a greater amount 
of production than they would under other circumstan- 
ces. This, I believe, is supposed to be the way in 
which the system produces its effect. This is the point 
of view in which we shall now proceed to consider it. 

The manner in which this is done is the following: Sup- 
pose a country to be under a free system, and that every 
one is devoting himself to agriculture, commerce, or 
manufactures, as he finds it the most for his interest ; un- 
der these circumstances, there will be a certain average 
of productiveness, both of labor and of capital. Wool- 
len cloth can be procured, by exchange, for five dollars 
a yard ; but it cannot, in the present state of the coun- 
try, be manufactured for less than ten dollars a yard ; 
that is, capital and labor are, in every thing else, so pro- 
ductive, that they could not be abstracted from other 
employments at the same rate of profit, unless the man- 
ufacturer could receive ten dollars a yard for his cloth. 
Now suppose, that, in order to enable him to do this, a 
duty of five dollars a yard is levied on imported cloth, 
by which the price of all cloth is raised to ten dollars a 
yard, that it may be in the power of the manufacturer, 
to employ his capital and labor in this manner. There 
is no doubt that thus the manufacture of cloth might be 
established. 

Now I think it evident, upon inspection, that the pro- 
ductiveness of labor is not, by this operation, increased. 
The reason why cloth was not manufactured before, 
was, that the productiveness of labor and capital, in this 
mode of investment, was lower than the average produc- 
tiveness of labor and capital in other modes of invest- 
ment. All that has been effected is, to raise the pro- 
ductiveness here to the general average elsewhere. 



136 PROTECTING DUTIES. 

There has been nothing done to render it any greater, 
either in this or in any other employment ; for I presume 
that no one will contend, that one kind of industry 
should be really more highly paid than another ; nor that, 
if it were desired, it could be effected without the aid 
of a direct monopoly. 

But the manufacturer now gets ten dollars for that 
which before would bring only five. Let us inquire 
whence this additional five dollars comes. 

It is evident that government possesses nothing. All 
that it possesses is precisely so much taken from the an- 
nual revenue of individuals. In this case, therefore, it 
really bestows nothing, but only causes a transfer of an- 
nual revenues, from one party to another. The case is, 
therefore, the same as it would be if, while there" had 
been no duty imposed, every man had been allowed to 
buy cloth for five dollars a yard, but had been obliged, 
for every yard that he bought, to pay five dollars to the 
manufacturer. It would be the same thing to both par- 
ties as at present. The consumer would then, as now, 
pay ten dollars a yard for cloth, and the manufacturer 
might sell it for five, if he received five more as a gra- 
tuity. The five dollars that have been added to the 
revenue of the one, are precisely five dollars taken from 
the revenue of the other. 

Now if this be the fact, inasmuch as what is added to 
the productiveness of the industry of the one class, is 
taken from the productiveness of the industry of the 
other class, it would seem that what the one has gained, 
the other has lost ; and hence, that there can be no in- 
creased stimulus to industry on the whole, since, by as 
much as the one is stimulated, the other is depressed. 
But this is not all. What you have given to the one 
class has only raised his mode of labor to the point of 
productiveness at which that of all the other classes ex- 
isted before ; while the means by which this has been 
effected, has, to the whole amount of its effect, reduced 
the productiveness of all the other classes lower than it 
was before. By just as much as this productiveness has 
been diminislied, by so much has the stimulus to indus- 
try been, upon the whole, decreased. 



PROTECTING DUTIES. 137 

But secondly ; As the price of the article is increas- 
ed, the demand for the article is diminished. This has 
been before illustrated. There will, therefore, be less 
of the article produced, because less of it is wanted. 
By all this diminution is the demand for labor diminish- 
ed ; the price of labor must, therefore, fall, and the stim- 
ulus to labor be, by so much, decreased. 

This effect will take place, in what manner soever the 
discriminating duty may operate. Suppose, that from 
scarcity of wool, the price of imported cloth had, with- 
out any duty, been doubled ? The result would have 
been, that the demand would so have fallen off, that mul- 
titudes would have been thrown out of employment, and 
whole establishments would have been ruined. Sup- 
pose that, by a duty, we exclude the foreign cloth, and 
make it ourselves, but at double the price. There will 
be a less quantity made, than before. But the imported 
cloth was not to be had for nothing. Some of our own 
population were obliged to raise the products which we 
sent in exchange for it. As we do not take their cloth, 
they cannot take our produce. Of course, all those 
who labored in the products which were exchanged for 
cloth, are out of employment. There was a demand for 
a sufficient amount of their labor to purchase one thou- 
sand bales of cloth ; suppose, now, there is a demand 
for labor sufficient to make only five hundred bales of 
cloth. By all the difference, therefore, between the la- 
bor necessary to procure one thousand bales by ex- 
change, and that necessary to manufacture, or procure 
by exchange, five hundred bales, is the demand for in- 
dustry diminished, and, of course, the stimulus to in- 
dustry weakened. 

We see, then, what is the tendency of a system of 
this kind. First, so far as the manufacturer is con- 
cerned, it cannot increase his profit beyond the average 
profits of every other employment ; for, if competition 
be allowed, capital and labor will flow into it, whatever 
may be its advantages, until its profits fall to the general 
level. Secondly, the demand for other labor is dimin- 
ished, by the reduced consumption created by a rise of 
12* 



138 PROTECTING DUTIES. 

price, and also, as this rise of price increases the ex- 
penses of living, it makes even these reduced wages of 
less value than they were before. Hence the tendency 
is, to reduce the profit of capital and of labor in the 
whole community lower than they were before such duty 
was imposed. To this reduced average, manufacturers 
must themselves conform ; and hence, by this very op- 
eration, they themselves must suffer. Hence we see the 
reason why, when once a duty is imposed for the pro- 
tection of a particular branch of manufactures, it is not 
long before a larger protective duty is demanded ; and 
also why a protective duty, which at first is followed by 
great manufacturing enterprise and success, is so com- 
monly afterwards followed by so universal a depression 
of manufacturing industry. 

This is the result, so far as the effect upon our own 
country is concerned. But this is not all. A rise of 
prices must, of necessity, follow a protecting duty ; for 
this is its very object. Its object is, to raise the price 
of some particular product, so that it may be created 
where it could not be created before. If it produce no 
rise of prices it is useless. Now, a rise of prices raises 
the cost of production, and, by its whole effect, must 
raise the price of every product which we create. By 
this whole effect, therefore, is our foreign market in- 
jured. If we can raise cotton at ten cents a pound, and 
bring it into market as cheap as other nations, we have 
as good an opportunity as they for selling it. If we can 
raise it at nine cents, we can undersell tkem, and supply 
the whole market ; or, if we sell it at the same price as 
before, we gain one cent more on the pound. If, by in- 
crease of the expenses of living, we cannot raise it for 
less than eleven cents a pound, they will undersell us, 
and we shall be obliged to give up the raising of cotton, 
either partially or altogether ; and the industry engaged 
in raising and transporting the cotton, and what we re- 
ceive in exchange for it, must, be either partially or 
wholly thrown out of employment. Every one must 
see, that the manufactures of England could be afforded 
much lower : that is, would be able much better to 



PROTECTING DUTIES. 139 

compete with those of other nations, if, by abolishing 
her duties on corn, her manufactures could be supplied 
with the necessaries of life at half the present cost. At 
the same profit to the laborer and capitalist, her prod- 
ucts could be afforded at a price less than at present, 
by the whole amount of the difference in the expenses 
of living. By this difference, she would both undersell 
other nations and increase the demand for her manufac- 
tures, thus reaping, at once, a double advantage. 

But once more : It is seen that, by such a system, 
the course of industry and of capital in a nation, must 
be greatly changed. Thus, when an article is imported, 
one class of producers must labor to create the article 
which we exchange for it ; another class must build 
ships to transport it ; and another class must carry on 
the transportation. By a discriminating duty, all these 
classes must, either in whole or in part, be thrown out 
of employment, and this capital be either reduced in 
value, or rendered wholly useless. Now this is an in- 
jury, both to the capitalist and the laborer. The prop- 
erty of the one and the skill of the other are rendered 
useless, and by so much is it a total loss to the country. 
It may be said, let them seek other employments. 
True ; they must do this ; but this renders it not the less 
true, that there has been so much loss. If a man's 
house be burned down, it is easy to say to him, move 
into another house ; but this does not alter the fact, that 
his house has been burned down, and that he has suf- 
fered loss to precisely this amount. 

But, suppose he turn to the other employment. It 
has been shown that the average of profit, in this em- 
ployment, cannot be higher than the average of profit 
was, in the employment which he left. He is then no 
better off than he was before, and, in the meantime, he 
has lost the skill and capital which he spent many years 
to acquire ; and he has lost them, not as in the case 
mentioned p. 97, by the progress of civilization, and 
with the prospect of bettering his condition, but by an 
act of arbitrary legislation. By all this amount of de- 
preciation, therefore, is he, and of course, the whole 
country, poorer by the exchange. 



140 BOUNTIES. 

Of Bounties. The principle of bounties is the same 
as that of discriminating duties. The manner in which 
they are bestowed, is the following : If a manufacturer 
cannot produce cloth for less than ten dollars a yard, and 
the imported cloth can be produced at five dollars, a 
bounty of five dollars a yard is given him, for every 
yard he manufactures, or for every yard he exports. 
The cloth, then, is sold, either at home or abroad, at 
five dollars, and he also receives five dollars as a gra- 
tuity. 

The principal reasons urged above, apply to boun- 
ties. They are, however, less objectionable, for several 
reasons : 

1. The price of the article is not visibly raised, and 
the consumption, therefore, on this account, is not so 
much diminished. 

2. The encouragement given, in this manner, is 
cheaper ; that is, we pay only for what is made, while, 
by discriminating duties, we pay the same, whether any 
thing be made or not. We pay a very heavy duty on 
cutlery in this country, while not a thousandth part of 
the cutlery used, is made here. It would be vastly 
cheaper to pay a bounty sufficient to raise all the cutlery 
made in this country to its present prices, and it would 
be, for aught I see, just as good for the cutler. The 
whole effect of this mode of encouragement is, to pay 
one man as much more as the bounty amounts to, for 
producing an article, than we should pay another man ; 
that is, one man will do it for five dollars, and we en- 
gage another to do it for five dollars, and give him five 
dollars besides, for the sake of economy. 

I have, thus far, considered this subject solely in re- 
spect to its connexion with economy ; that is, as it is 
favorable or unfavorable to production. It is, however, 
obvious, that an entirely distinct argument might be con- 
structed on another, that is, a moral ground. It might 
be asked, by what right does society thus interfere with 
the property of the individual ? when did the individual 
surrender this right r* and how wise would it be for him 
to surrender it ? It is in vain here to urge, that society 



OBJECTIONS CONSIDERED. 141 

has the right to destroy individual property, in cases of 
extreme necessity ; because, in order to render this plea 
available, it must be shown that this is a case of extreme 
necessity. And besides, if society destroy individual 
property in case of extreme necessity, it is always bound 
to make good the loss to the individual. I think that, 
if the protected interests were obliged to make good the 
loss which the system inflicts upon all other interests, 
the demand for protection would be less urgent than at 
present ; and protection would be considerably less in- 
jurious. 

But, as these are questions of right, and belong rather 
to Moral Philosophy than to Political Economy, we 
shall not, in this place, discuss them any further. 

But, in opposition to what has been offered, several 
objections have been urged. It may be proper to notice 
here, some of those which are most commonly ad- 
vanced. 

I. The above argument is made to turn upon produc- 
tion alone, and proceeds upon the supposition, that the 
prosperity of a nation depends upon the productiveness 
of its industry, more than upon any thing else. In or- 
der to meet this view of the case, it has been said, that 
production is a matter of no consequence to a nation's 
prosperity, and that, in order to make a nation rich, 
happy, and powerful, all that is necessary is, to encour- 
age and stimulate consumption. 

1. To this it may be answered, that this assertion 
leaves the above argument untouched, so far as produc- 
tion is concerned ; that is, it does not deny that the ef- 
fects of discriminating duties upon production, are such 
as we have shown. 

2. But secondly : If a man assert that the wealth of 
a nation is the result of its consumption, and not of its 
production, he must also assert that the band of the 
prodigal, and not that of the diligent, rnaketh rich ; 
that industry and frugality are the sources not of wealth, 
but of poverty ; that fire and sword, devastation and 
murder, are national blessings ; that ice ought to pay 
other nations, instead of their paying us, for spoliations 



142 OBJECTIONS CONSIDERED. 

of property ; that incendiaries should be rewarded, in- 
stead of being hanged ; and that the way to render a city 
rich, happy, and prosperous, is to reduce it to ashes. 
If a man really believe this ; I do not say if he assert 
it ; his case is beyond the reach of ratiocination. 

II. It has also been urged, that the only method of 
rendering products cheap, is to encourage competition ; 
that competition is the great source of increased produc- 
tiveness of labor, and that to excite competition among 
our own manufacturers, by means of higher duties, is the 
only sure method by which to cause any article of ne- 
cessity to be produced at the lowest possible rate. 

To this objection we reply, that the principle assum- 
ed is erroneous ; and that the reasoning in support of it 
is self -destructive. 

1. The principle assumed is erroneous. Although 
free competition is necessary, to reduce prices to their 
natural rate ; yet beyond this, competition, within long 
periods, can have no effect whatever. The price of 
every article is determined by the cost of its production ; 
that is, by the labor and capital necessary to produce it. 
Its price can be reduced in no other manner than by 
reducing this cost. If the materials can be furnished 
cheaper, and it can be produced by less labor, its price 
will fall ; but it can fall from no other cause. If it be a 
monopolized article, the producer may, over and above 
a fair remuneration for his expenses, demand an exces- 
sive profit. If there be a free competition, his profits 
will be reduced to the general average of other capital 
and labor. A competition which obliged a producer to 
sell for less than cost, would of course, ruin him, and 
would be a loss to the community. Such is the case in 
times of manufacturing depression, when the producer 
is obliged to sell at a loss. These are surely not times 
of prosperity. The result of such competition is, to 
drive a portion of the producers out of employment ; 
a less amount of the product is created, competition is 
diminished, prices rise to their natural level, and the 
whole effect of competition is at an end. If, then, 
when there is no monopoly, competition, be it ever so 



OBJECTIONS CONSIDERED. 143 

grear, can reduce the price of no article permanently 
below the cost of its production ; and that, by this cost 
its price will always be determined, be the competition 
whatever it may ; it is evident, that the only way in 
which the price of any thing can be realty reduced, 
must be by diminishing the price of the material and la- 
bor employed in creating it ; that is, by rendering every 
thing as cheap as possible. And it is also evident, that 
by raising the price of articles of consumption ; that is, 
of the articles of living, we shall also raise the price of 
whatever is produced, let the competition be ever so 
great. 

But, secondly, the argument drawn from the assertion 
is self-destructive. If it be the fact that competition is 
the great and proper cause of reduction of price, then, 
the wider the competition, the greater will be the reduc- 
tion of price. If this be so, we should not only open 
our ports to every other nation, but should abolish im- 
port duties altogether, even for the sake of raising a rev- 
enue, and sustain the expenses of civil government al- 
together by direct taxation. It would, however, be a 
new mode of encouraging competition, if the citizens of 
New York should forbid every one, not a native of that 
city, to exercise the trade of a carpenter or joiner, 
within the limits of their jurisdiction. In what manner 
such an act would reduce the prices of house-building, I 
confess myself unable to discover. 

I think, therefore, that the system of discriminating 
duties cannot be defended on the ground that they, by 
competition, tend to reduce prices. 

III. Again : It is asked, is it not better to labor for 
ourselves, than to have others labor for us ? 

I answer, undoubtedly. We must labor for our- 
selves, unless we mean to live either by begging or by 
stealing. And this is really the only alternative which 
the Creator has left us. On this point, therefore, there 
is no dispute. It is agreed on both hands, that it is better 
to labor for ourselves, than to have others to labor for us. 

Whatever either a man or a nation possesses, except 
by robbery or begging, must be the production of its 



!44 OBJECTIONS CONSIDERED. 

own labor. The question then, is, whether it is better 
for us to receive a greater, or to receive a less result 
from our labor. Every man must labor for a coat. 
But is it better for him to procure it by labor, for five 
dollars a yard, or for ten dollars ? Is it better that he 
should, by exchange, earn it by five days' labor, or 
make it for himself, by fifteen days' labor ? He pro- 
cures it as much by labor in the one case, as in the oth- 
er. I do not see that there can be any question, in 
which way his labor can be most profitably expended. 
If a manufacturer wish for oranges, he can procure 
them in no other way than by labor. The question is, 
whether he shall procure them by labor in manufactures, 
or by labor in raising them. In the first case, a day's 
labor will produce, by exchange, a hundred oranges ; 
in the second case, it will cost several days' labor to 
produce one. The question is, in which way, by la- 
bor, can a manufacturer, most easily, supply himself 
with oranges ? 

Upon this point, really hinges the \vhole matter in dis- 
pute. It is clear, as has been stated, that every thing 
which we possess, either as nations or as individuals, 
must be the result of labor. It is granted, however, in 
every other case but this, that the greater the amount of 
product which w r e can create by a given amount of la- 
bor, the better it is for the producer. Suppose the labor 
of a particular community to be valued at a million of 
days' works annually, it is certainly wise in this commu- 
nity to procure, by this amount of labor, as large an 
amount of product as it can. Suppose, that by laboring 
in those modes of production for which it has the great- 
est facilities, and then by exchanging a part of its prod- 
ucts for those of another country, it can realize two 
millions of dollars' worth of products ; but, by producing 
every thing for itself, it can only realize a million and a 
half dollars' worth. In which case, I ask, is labor more 
amply rewarded ? Which is the wiser method of appor- 
tioning its labor ? In which way will capital accumulate 
most rapidly, and the nation soonest be capable of man- 
ufacturing profitably for itself ? 



OBJECTIONS CONSIDERED. 145 

IV. But it is said, although we may be obliged, at 
first, to procure manufactures at a higher price, yet, 
having once introduced them, they will, in the end, be- 
come cheaper than before ; and thus, our ultimate ben- 
efit will more than repay our temporary loss. 

In order to consider this objection, it will be necessa- 
ry to refer to what we have already remarked on the 
nature of annual and fixed capital. 

It is evident, that, in the first stage of any society, 
there exists nothing but the earth with its capabilities, 
and man to labor upon it. The labor of man produces 
an annual capital. If he have been industrious and fru- 
gal, there will have arisen an annual surplus, which must, 
of necessity, be transformed into fixed capital ; and it is 
so transformed, for the purpose of increasing the annual 
capital. Thus, every addition to the fixed capital for 
this year, lays the foundation for the investment of a 
larger amount in fixed capital for the next year ; and 
thus nations grow rich, and the demand for fixed capital 
is annually increasing. 

It is evident that the investment in fixed capital will 
be, first, in those instruments themselves, necessary for 
the direct increase of annual production, as ploughs, 
fences, houses, barns, &c. , and, secondly, in the ma- 
chinery necessary to the creation of these, and of the 
productions for annual consumption ; that is, it will be 
in manufacturing establishments. But, inasmuch as the 
capital of a country is at first small, a nation will, of 
necessity, at first invest its annual surplus in those man- 
ufactures which require the least capital, and of which 
the price is most enhanced by transportation. As capi- 
tal increased, it would become able to make larger in- 
vestments of fixed capital. Manufactures, which it 
would have been impossible for it to conduct profitably 
in its tenth year, it may conduct profitably in its fifti- 
eth year ; and what it could not conduct profitably in 
its fiftieth year, it may very profitably conduct in its 
one hundredth year. And the reason of this variation 
is two-fold. In the one case, it did not, and in the 
other case it did, possess the capital necessary for the 
13 



146 OBJECTIONS CONSIDERED. 

investment in this particular branch of manufactures ; 
and, in the second place, though it possessed the requi- 
site capital, that capital could not be taken from the em- 
ployments in which it was at present engaged, and in- 
vested in any thing else, without a loss, that is, a dimi- 
nution of profit. As soon, however, as the most neces- 
sary investments have been made, their annual product 
will enable the nation to commence something else. By 
the multiplication of capital, the rate of interest is di- 
minished, and a nation is gradually enabled to produce 
for itself every thing for which it has the natural facili- 
ties. And hence, the time when any manufacture can be 
profitably established, in a country which possesses nat- 
ural advantages for it, is decided by the amount of the 
capital of that country ; the amount of annual invest- 
ment which it is able to make in fixed capital ; and on 
the rate of interest at the period in question. 

Now, suppose that the system of discriminating duties 
left the means of accumulation unaffected. In this case, 
the period of profitably producing the article in question 
would arive, at the same time as if no such system had 
been adopted. Previously, therefore, to this time, the 
article must have been purchased by the whole commu- 
nity, at an additional and unnecessary expense ; since, 
when this time arrived, in the natural course of things, 
the manufacture in question would commence, just as 
though nothing had been done, and just as every other 
manufacture had previously commenced. In this case, 
then, I see not that there would be any gain. All that 
has been paid, therefore, is so much unnecessary ex- 
pense, without rendering this kind of investment profit- 
able to the whole community, any sooner than it would 
have been, had no such expense been incurred. 

That, however, a discriminating duty does not in- 
crease productiveness, that is, the means of accumula- 
tion, but that, on the contrary, it diminishes it, has, I 
think, been already shown. Now, by just so much as 
it diminishes productiveness, and of course diminishes 
annual capital, by so much it postpones the period, at 
which the manufacture in question can be profitably es 



OBJECTIONS CONSIDERED. 147 

tablished. Hence, the state of the case is this : In the 
present condition of capital and labor, the manufacture 
of a particular produce is unprofitable. In order to 
produce it now, instead of producing it at a later period, 
we diminish the productiveness of all other labor. And 
the only effect of this imposition which we have laid 
upon ourselves, is, instead of hastening the period of its 
profitable establishment, to postpone it to a still more 
distant period. 

But this is not all. We see that all this is done, and 
all this expenditure is incurred, without any certain 
knowledge of the result. It cannot be certainly known 
when the period will arrive, at which the manufacture, 
in favor of which we have laid the discriminating duty, 
may be profitably commenced, or whether, indeed, it 
can ever be commenced at all. If it can never be 
commenced, we have thus imposed a duty by which we 
are all made so much the poorer, without the prospect 
of any benefit. And if it may profitably be established 
at some future time, but we know not when that time 
will arrive, we are paying out our money at random ; 
that is, we know not whether we shall gain or lose by 
the exchange. Supposing a benefit in fact to result, it 
is worth a given sum, and no more ; but we have no 
means of knowing whether the sum which we pay is 
only equal to the benefit, or whether it is ten times 
greater. Now, that it is very possible for a nation thus 
to pay for an advantage, supposing an advantage to be 
gained, vastly more than it is worth, is manifest. 

To illustrate the amount which has been frequently 
expended to gain this supposed advantage, I subjoin the 
following instances from the Edinburgh Review, for Oc- 
tober .1829: 

" The French duties on iron, from 1814 to 1822, 
have directed much capital to the iron trade. In 1818, 
1,140,000 quintals of unwrought iron were produced in 
France; in 1825, 1,976,000; in 1829, 2,269,000. 
Thus far the system has succeeded. 

On the contrary, as foreign iron is imported at a 
duty averaging twenty francs, the price of the whole 



148 OBJECTION'S CONSIDERED. 

2,269,000, above what it could have been imported for, 
is, 40,538,800 francs, the direct cost for protection. 
This is about £ 20 sterling a-piece to every person en- 
gaged in the iron trade. The effect of these measures 
is, to add fifty francs to the price of a plough, and to 
render cotton machinery one third dearer than it would 
be if imported. The price of charcoal has been doubled 
or trebled, and from twenty-five to fifty per cent, has 
been added to the price of iron and wood. So great is 
the injury to other branches of production. 

And yet the iron trade is depressed. This is owing to 
the fact, that too great a portion of capital has been di- 
rected to the iron trade ; and also to the increased price 
of charcoal. It must also necessarily follow, from what 
has been said above, that this pressure, which has been 
brought upon other branches of production, must reduce 
the average ratio of profit ; and to this average the iron 
trade must sink, as well as every thing else. Here there 
is an injury done to every other branch of business, and 
yet the iron business is not at the average rate of profit ; 
that is, it is depressed. There is a great annual loss ; but 
where do we see the prospect of a subsequent benefit ? 

The sugar trade. To encourage her colonies, France 
lays a duty of fifty francs per quintal, on all foreign 
sugars. This has increased the quantity made at home 
and at her islands. So far it has succeeded ; but, 

2. The difference between the duty on foreign and 
the duty on her own sugars, amounts to 32,945,000 
francs. This is the bounty paid to the sugar growers 
of Martinique and at home. 

3. The quantity of sugar consumed is probably less 
by one third, than it would otherwise be. England, 
with half the number of inhabitants, consumes two and 
a half times as much sugar as France. 

4. But it is said, that, by this means, beet-root sugar 
will yet supply France at the ordinary price. It must, 
however, take twenty years, under the present system, 
in order to do this. The present protection costs 
£1,400,000 per annum. Suppose this to continue for 
twenty years, it will amount to <£ 28,000,000 sterling, 



OBJECTIONS CONSIDERED. 149 

the interest of which, at five per cent., will buy, at two 
and a half pence per pound, 126,000,000 pounds of 
sugar per annum ; or nearly the whole annual amount 
of sugar now consumed in France. 

The Cotton Manufacture. By pushing forward those 
products for which she has no capabilities, she has di- 
minished those to which she is adapted. Countries 
which formerly bought of her, now that she refuses to 
receive their products, refuse to receive hers. Hence, 
the exports of wine, her natural product, have fallen off. 

Before the Revolution, her export of wine averaged 
100,000 tons per annum. Since 1820, it has varied 
from 39,000 to 63,000 tons. The result upon her silk 
trade has been the same. She has obliged other na- 
tions to raise silk for themselves." * 

Such are some of the certain evils of such a system. 
These surely ought not to be voluntarily imposed upon 
ourselves, without equal certainty of future benefit, and 
a benefit so much superior to that which we should oth- 
erwise have reaped, as to compensate us for all the evils 
and expenses which we impose upon ourselves. And 
if it do no more than this, we are the losers, by all the 
cost of the agency for doing that which would as well 
have been done without us. But, if the system itself 
do nothing towards hastening the time of profitable in- 
vestment in manufactures, then it is an immediate and a 
very great and wide-spreading evil at present, and it 
tends to nothing but evil for the future. 

V. It is said, that it is frequently expedient to impose 
a duty as a measure of retaliation. The case is this. 
A nation will not receive our products, and we, in order 
to punish her, and thus oblige her to change her policy, 
refuse to receive hers. Let us proceed dispassionately, 
but briefly, to consider this argument. 

1 . Is retaliation a virtuous or an honorable motive to 
action ? Do we not consider it vicious and mean in an 
individual ? Can it be otherwise in a nation ? The pre- 
sumption must surely be adverse to a course of conduct, 

* I have marked the above passage as a quotation, although I have 
abridged the extract, without giving the exact words. 
13* 



150 OBJECTIONS CONSIDERED. 

which is a manifest departure from elevated moral prin- 
ciple. 

2. Is retaliation, in the intercourse between man and 
man, generally wise ? Do we not commonly observe, 
that it leads men to headlong vindictiveness, which is as 
likely to injure themselves as their opponent ? 

3. Our object is to distress the other country until we 
oblige her to alter her policy and receive our products. 
But will this appeal to her fears be as likely to produce 
the change which we desire as setting her the example 
of manly generosity ? Of all means that can be con- 
ceived, a threat is the least likely to produce effect upon 
large masses of men. 

4. But if we resolve to injure our neighbor, let us 
see that we do not too much injure ourselves, and thus 
render her enmity still more effective. 

She refuses our products, and we retaliate by refusing 
hers. Now we can, by exchange with other nations, 
procure her products at a cheaper rate than we can 
manufacture them ourselves, or we cannot. If we can- 
not, then a duty is unnecessary, since we shall, in that 
case, of course, produce them ourselves. If, in conse- 
quence of the obstacles which Great Britain opposed to 
the reception of our raw material, her cottons were 
raised in price as high as those manufactured here, we 
should exclude them immediately by our own products. 
If, on the other hand, by means of a double exchange, 
we can procure them cheaper than we could procure 
them in any other manner, it would be for our interest 
thus to procure them. Because another nation wishes 
to injure us, there is no reason why we should injure our- 
selves. We surely injure ourselves when we pay a 
dollar for an article when we could get it just as well for 
seventy-five cents. 

And besides, it is said, w T e wish to become indepen- 
dent of the other nation. True ; but how shall we be- 
come independent of her. Clearly by becoming wealthy 
and powerful. But the way to wealth and power is, 
surely, to buy where we can buy on the best terms, and 
sell where we can sell on the best terms. We thus 



OBJECTIONS CONSIDERED. 151 

shall the most rapidly accumulate wealth, and increase 
our population, and thus most readily shall we be able 
to compete with the manufactures of any other nation. 
The question, then, seems to be simply this. Shall we 
diminish our own happiness for the sake of diminishing 
the happiness of another ? or shall we, deaf to the insti- 
gations of vindictiveness, and irrespective of the effect 
upon others, promote our own happiness by every means 
in our power ? Or still further, if we resolve to punish 
our neighbor, would it not be worth while to ask what 
it will cost ; and whether we are willing, for the sake of 
retaliation, to pay several millions of dollars annually. 

To all this, it is, finally, objected, that a government 
having adopted a restrictive system, and having thus 
obliged persons formerly engaged in other branches of 
industry to embark in manufactures, is under moral obli- 
gation to continue that protection ; at least so long as to 
enable the manufacturer to change his mode of employ- 
ment without injury. To this objection I have no de- 
sire to make any reply. It is a question of morals, and 
not of political economy. Whatever the government 
has directly or indirectly pledged itself to do, it is bound 
to do. But this has nothing to do with the question of 
the expediency, or inexpediency, of its having, in the 
first instance, thus bound itself; nor with the question 
whether it be not expedient to change its system as fast 
as it may be able to do so, consistently with its moral 
obligations. 

For these reasons, I do not believe that the direct 
efforts of government are to be numbered among the 
means for encouraging the application of labor to capital. 
Their good effect, if it exist, must, therefore, be sought 
for, not in their effect upon production, but upon some- 
thing else. 

But it may be asked, can a government do nothing to 
promote the industry of a people, and to increase the 
amount of their production ? I answer ; they can do much. 

1. They can enact wise, wholesome, and equitable 
laws, and thus protect the individual in the exercise of 
his right of person and property. 



152 OBJECTIONS CONSIDERED. 

2. They can do much to accomplish the universal 
diffusion of the means of knowledge, by the promotion 
of education among all classes of the people. 

3. They can do much for the promotion and exten- 
sion of science, by fostering seminaries of learning. 

4. They can originate that knowledge, which must 
otherwise be obtained at great individual expense. As, 

1. By experimental farms, of which the results should 
be accurately registered, and published to the whole 
community. 

2. By experimental manufactures, which might show, 
from time to time, what branches of manufacture could 
profitably be introduced into a country, and how they 
might be most successfully conducted. 

In this manner, much might be done, and at small ex- 
pense. When these means have been tried, and have 
failed, it will be time enough to make other and more 
expensive experiments. 

5. They can do much, by confining themselves to 
their own appropriate duties, and leaving every thing else 
alone. The interference of society with the concerns 
of the individual, even when arising from the most inno- 
cent motives, will always tend to crush the spirit of en- 
terprise, and cripple the productive energies of a coun- 
try. What shall we say, then, when the capital and the 
labor of a nation are made the sport of party politics ; 
and when the power over them, which a government 
possesses, is abused, for the base purpose of ministering 
to schemes of political intrigue ? 

So far as I am able to discover, such are the most 
important conditions on which the productiveness of any 
society depends. They are briefly these : Industry and 
Frugality, Virtue and Intelligence. Possessed of these, 
no nation, with the ordinary blessing of God, can long 
be poor. Destitute of either of them, whatever be its 
natural advantages, no nation can ever long be rich. 
Patriotism, no less than religion, would, therefore, teach 
us to cultivate these habits in ourselves and in others ; 
and he is the purest patriot who cultivates them most 
assiduously. 



BOOK SECOND. 



EXCHANGE. 

Exchange, is a transaction, in which two individu- 
als mutually and voluntarily transfer to each other the 
right of property, to a given amount, either in capital or 
labor. 

This transfer must be both mutual and voluntary by 
both parties, or else it is robbery by one party. If 
property, without the right of possession, be given in 
exchange, it is fraud. If I give a horse in exchange, 
which does not belong to me, I confer no right of prop- 
erty ; for I have none to confer ; since the real owner 
may reclaim him, at any moment. The exchange may 
be either of capital by both parties, as if A and B ex- 
change wheat for corn ; or of capital for labor, as when 
A gives B a bushel of wheat for a day's labor ; or of 
labor for labor, as when A agrees to work for B to-day, 
on condition that B shall work for him to-morrow. Ex- 
change is of three kinds, viz : 

I. Barter in general, or exchange in kind. 

II. Exchange by means of a metallic currency. 

III. Exchange by means of a paper currency. 



154 
CHAPTER FIRST. 

OF BARTER OR EXCHANGE IN KIND. 



SECTION I. 

OP THE PRINCIPLES IN THE PRESENT CONSTITUTION, 
WHICH GIVE RISE TO EXCHANGE. 

1. It has been already shown, that human labor, of 
some kind, is necessary to production ; that is, to the 
creation of whatever has the power of gratifying human 
desire. Hence, without labor, no desire would be grat- 
ified ; that is, the race would speedily perish. As we 
have said before, the law of our being, imposed upon 
every individual, enacts that, by the sweat of our face 
we shall eat our bread. 

2. But by labor exerted upon any substance, in such 
manner as to give it value, we establish over that value, 
either in whole or in part, the right of property. If the 
original capital were our own, we possess that original 
capital, together with all the additional value, which the 
change that we have effected has created. If, by labor 
upon ihe capital of another, we have increased its value, 
we establish a right to a portion of it, to be estimated 
by the respective values of the labor and capital em- 
ployed. Nay, this capital is nothing but the result of 
pre-exerted labor. So that the capitalist contributes his 
past, and the laborer his present labor, and they share 
the product between them. 

3. Hence, from the very conditions of our being, the 
act of creating a value appropriates it to a possessor. 
This holds true of every thing not the spontaneous gift 
of God. Hence, every thing created by man, belongs 
to some man ; that is, he possesses over it the right of 
property. And this right of property is exclusive ; that 



PRINCIPLES WHICH GIVE RISE TO EXCHANGE. 155 

is, he has the right to use it as he will, to the exclusion 
of every man and of all men. And, provided he do 
not interfere with the rights of others, no man can inter- 
fere with his use of whatever product he has created, 
without a violation of moral law. 

4. Different men are constituted by the Creator with 
different aptitudes for different pursuits, and with differ- 
ent dispositions towards those pursuits. One man is 
adapted to investigate, and another to apply to practice, 
the laws of nature, and another to perform the operation 
by which those laws are made to create value. And 
these aptitudes are still further subdivided. One man is 
better adapted to investigate physical, another intellec- 
tual, and another moral laws. Thus, also, in the various 
pursuits of operative industry, one man prefers agricul- 
ture, another manufactures, and another navigation. And 
it is found, as might be expected, that the disposition 
towards a particular operation, severally corresponds 
with a man's aptitude for it ; that is, that, in general, a 
man is most strongly disposed to devote himself to that 
particular occupation, for which God has given him the 
greatest aptitude. Indeed, the disposition, in most cases, 
will do very much to create the aptitude. A man al- 
ways labors more successfully in an occupation which he 
likes, than in one which he dislikes. 

5. Hence, a great public, as well as private advantage, 
arises from every one's devoting himself to that occu- 
pation which he prefers, and for which he is specially 
fitted. Inasmuch as he likes it best, he is thus happier 
than he would be in the pursuit of any other. Every 
one thus being able to do that which he likes best, every 
one will derive from this source, all the happiness which 
it is able to confer. And, inasmuch as he is better fitted 
for it, he will, with the same labor, create a greater 
amount of value than he will by labor in any other em- 
ployment. He will also create the value much more 
perfectly. The annual amount of value, created in a 
community, will thus be greatly increased, with the same 
amount of labor, and, with a much greater amount of 
happiness. If every man labored at that employment in 



156 PRINCIPLES WHICH GIVE RISE TO EXCHANGE. 

which he could create an amount of value equal to twen- 
ty, there would be, by the whole society, just twice as 
much created, as if, by changing occupations, each one 
labored at that for which he could create a value equal 
only to ten. If all the different classes of laborers were, 
for a year, to be obliged to exchange work with each 
other, every one can perceive that, for that year, pro- 
duction would almost absolutely cease. 

6. Were this all, though every man created his own 
particular value with the greatest possible success, yet 
each man would, manifestly, possess but one value. The 
wheat grower would have nothing but granaries full of 
wheat ; the carpenter, nothing but ranges of houses ; the 
stone cutter, nothing but piles of stone ; and the shoe- 
maker, nothing but thousands of shoes. But while there 
exists in every man, both the aptitude and the disposition 
for the creation of a particular value, there exists equally 
in every man, a desire to enjoy every value that can be 
created. A man may like to create a value of which he 
desires to use but very little himself ; nay, for which, in 
itself, he perhaps has even less desire than most other 
men. The man who is the fondest of fishing, may be, 
by no means, a great lover of fish. He who is the fond- 
est of hunting, may be, by no means, the fondest of 
game. No man supposes, because a man is fond of fox- 
hunting, that he is fond of fox-eating. Thus, we see, 
that the desire for the creation of value, is one thing, 
and the desire for using the value created, is another. 
The one is limited to single objects, and the other is as 
widely extended as the objects to which it can be direct- 
ed. And it is evident, that the one form of desire is 
as much intended to be gratified as the other. He who 
created the desire, and also created the object which 
would gratify it, intended the one for the other, restrict- 
ing man only to the modes and degree of gratification 
which he has appointed. Civilization and social happi- 
ness advance, just in proportion as the greatest number 
of the desires of man are gratified, in conformity with 
the laws of the Creator. 

7. We see, then, that man is created with the aptitude 



NATIONAL EXCHANGE. 157 

and the desire for the creation of one product, but with 
the desire for the enjoyment of a thousand products, and, 
that the gratification of one of these forms of desire is 
as much the intention of his Creator, as the gratification 
of the other. He is intended to produce one thing, and 
to hold this thing produced, by the right of property, 
while at the same time, every man is intended to require, 
for the gratification of his desires, a thousand things. 
Now, it is the existence of these contrary indications in 
his nature, that creates the necessity for exchange. The 
right to use his product as he pleases, is also the right to 
transfer it to whomsoever, that is, to exchange it with 
whomsoever he pleases, and for whatever he pleases. 
By doing this, all the indications of his nature are ful- 
filled. The right of property is preserved inviolate. 
Every one may employ his own capital and industry as 
he pleases, that is, as will best promote his own happi- 
ness, and also as will add the most abundantly to the 
wealth of the whole community ; and, at the same time, 
by means of the products of his single branch of indus- 
try, he may procure every object of desire that every 
other man has created. And, inasmuch, as by division 
of labor, on the principle of which we have spoken, a 
larger amount will be created, and in greater perfection, 
he will procure every object at less labor, and in more 
perfect condition, than would be possible in any other 
manner. 

The necessity of exchange, therefore, as truly enters 
into the conditions of our being, as that of production. 
Without exchange, there could be no division of labor, 
and, of course, only the smallest possible amount of 
production. Without exchange, there would rarely be 
any stimulus to labor ; for labor could add but little to 
our means of gratification, beyond the most absolute ne- 
cessaries of life. There would be no stimulus to form 
societies, since, as man depended solely upon himself, 
he might as well be solitary as social. Hence, all pro- 
gress in civilization would be hopeless, and each genera- 
tion would tread precisely in the footsteps of that which 
had preceded it. 
14 



15S NATIONAL EXCHANGE. 

S. I have, thus far, spoken merely of exchange be- 
tween the individuals of the same society. I think it 
evident, however, that the same principles apply with 
equal force to the exchanges between different societies. 

The aptitudes of different nations for the creation of 
different products, has, in many cases, been fixed by 
unchangeable, geographical, and physiological law. Cot- 
ton, coffee, spices, dye-stuffs, sugar, rice, and many of 
the most valuable fruits and medicines, can be cultivated 
only in southern latitudes. Wool, wheat, and bread- 
stuffs generally, flax, and the most valuable animals, are 
found only in temperate climates. Iron is found in north- 
ern latitudes ; and furs, hemp, and feathers are brought 
from climates still further north. One country is better 
adapted to commerce, another to agriculture, and another 
to manufactures. 

Besides, as we have already shown, a society, at one 
period of its history, is better adapted to one sort of 
production than to another. When capital is scarce and 
land is cheap and fertile, a nation is better adapted to 
agriculture ; when capital becomes abundant and land 
dear, it becomes gradually better adapted to manufac- 
tures ; that is to say, nations, as well as individuals, both 
by original endowment and accidental circumstances, 
have their special adaptations to the creation of particu- 
lar products. I suppose it unnecessary to state, that 
nations, that is, people, if left to themselves, are like 
individuals, disposed to avail themselves of the peculiar 
advantages bestowed upon them by their Creator. Self- 
interest teaches them this lesson with sufficient clearness, 
and they willingly practise it, if left to their own natural 
instincts. 

It is also evident that, by each nation's devoting itself 
to that branch of production for which it has the greatest 
facilities, either original or acquired, its own happiness 
will be better promoted, and a greater amount of pro- 
duction created, than in any other manner. And while 
all nations thus appropriate their industry, a much greater 
amount of annual value will be created for the whole 
human race, than by any change that could possibly be 



NATIONAL EXCHANGE. 159 

made. If Cuba should relinquish the raising of coffee 
and sugar, and devote herself to the raising of wheat ; 
and New York, relinquishing the culture of wheat, should 
betake herself to the raising of coffee and sugar, would 
not both communities be poorer, and would not the price 
of coffee, sugar, and wheat be increased over the whole 
world ; that is, would not all the world, and these coun- 
tries especially, be poorer than they are now ? 

But, whilst it is thus evident that every nation is in- 
tended by the Creator to improve its own advantages, 
that is, to create that product for the creation of which 
it has the greatest facilities ; it is also the fact, that every 
nation, and every individual of that nation, desires the 
productions of every other nation ; and is happy in pro- 
portion as he enjoys them. What nation could be happy 
without the cotton of the South, the hemp and iron of 
the North, or the wool, wheat, and manufactures of tem- 
perate climates ? Nay, let any individual look at the 
clothes which he wears, the furniture of his room, or 
the food and utensils of his table, and he will be imme- 
diately convinced, that every latitude of both hemis- 
pheres, and almost every country on the globe are tribu- 
tary to his happiness. His own country has peculiar 
adaptations, but they are adaptations for but few prod- 
ucts, while every citizen of that country requires for 
his convenience, nay, almost for his existence, the pro- 
duction of every other country. These desires can be 
gratified only by national exchanges. Hence we see, 
that national exchanges enter into the constitution of 
things under which we are created, as much as individual 
exchanges. 

And the final cause of this constitution is, in both 
cases, equally evident. 

Individuals are made thus dependent upon each other, 
in order to render harmony, peace, and mutual assist- 
ance, their interest as well as their duty. Where men 
are mutually dependent upon each other, the prosperity 
of one, is the prosperity of all ; and the adversity of 
one, is the adversity of all. No one can enjoy many 
of the blessings which God has intended for him, only 



160 NATIONAL EXCHANGE. 

in so far as others enjoy them also ; and no one can be 
deprived of them, unless others are deprived of them 
to a considerable degree also. Thus, we see that the 
individual progress of man, is, by the constitution of 
things, indissolubly connected with, if not absolutely de- 
pendent on, his social progress. 

And, for the same reason, nations are dependent 
upon each other. From this universal dependence, we 
learn that God intends nations, as well as individuals, to 
live in peace, and to conduct themselves towards each 
other upon the principles of benevolence. Where all 
are mutually dependent, as in the former case, no one 
can prosper without increasing the prosperity of all, nor 
suffer without bringing suffering upon all. Hence, it is 
as truly our interest to seek the happiness, peace, and 
prosperity of other nations, as it is to seek the happiness, 
peace, and prosperity of our own nation. 

9. From the above constitution it is evident, that uni- 
versal exchange is as necessary to the welfare, and even 
to the existence of the human race, as universal pro- 
duction. We have already seen, that in all the depart- 
ments of human industry, a great saving, both of time 
and expense, is effected by division of labor. This is 
as true of labor in exchange, as in any other case. 
Since, then, exchanges must be made, it will be better 
for the to/io/e, if a part of a society devote themselves 
exclusively to the business of making them. 

Thus ; suppose that, in a given society, the labor is 
divided, so that each individual devotes himself to the 
creation of a given product. One man raises wheat, 
another rye, another wool ; one labors upon iron, anoth- 
er upon wood, another upon leather, &c. Now, these 
persons can procure the productions of each other only 
by exchange. But if evevy one, every time he needs 
any thing, is obliged to leave his labor to find a pur- 
chaser for his product, he will lose much time himself, 
and will consume a large portion of the time of all his 
neighbors. It would frequently take as much time to 
exchange a pair of shoes, as it would take to make 
them. This additional lime must enter into the price of 



NATIONAL EXCHANGE. 161 

the shoes ; and hence, these, and every other article of 
consumption, would rise in price accordingly. 

In such a case as this, it would clearly be a great 
benefit to the whole society, if some one should de- 
vote himself exclusively to the business of making ex- 
changes. Every producer might then deposit with him 
whatever he had to exchange, instead of going in search 
of a purchaser. When this was done, every one, by 
going to him, might ascertain immediately, what was to 
be exchanged, throughout the whole community, and at 
what price ; and also, what was required in exchange. 
He would thus be able, at once, to procure, by his own 
product, whatever was procurable for it ; and to know 
what he must produce, in order that he may procure 
what he may need. Thus, the labor of a whole day, or 
of several days, might be accomplished in a few min- 
utes, in a much more perfect manner, than by any other 
method. Hence, as all the time unnecessarily consumed 
in the other method would be saved, much more time 
might be appropriated to production. As, in a given 
time, and with given labor, there would be greater pro- 
duction, every thing would be cheaper, that is, every 
one would be richer ; and, at the same time, a reasona- 
ble profit would remain for him who devoted his time to 
the labor of exchange. 

Hence, we see that exchangers are as necessary to 
the cheapness of production as producers themselves. 
Hence, we also see how absurd is the outcry sometimes 
raised against them, because it is said they produce noth- 
ing. Did not a large class of the community devote 
themselves to this employment, it is impossible to con- 
ceive what would be the price of the most common and 
necessary utensil. Were the farmer obliged to carry 
his wheat or his cattle to Sheffield, to exchange for nee- 
dles for his wife, or for a sickle for himself, who could 
estimate what these utensils would cost ? If the laborer 
were obliged to go to Birmingham for a spade, which 
he must use in New York, what would be the price of a 
spade, and how would he ever be able to gain a subsis 
tence ? The laborer may sometimes complain that' the 
14* 



162 RETAIL MERCHANTS. 

merchant is rich, and that he is poor ; that the merchant 
stands at his desk, while he labors in the street ; that 
the merchant rides in his carriage, while he travels on 
foot. But it may be to him some consolation to remem- 
ber, that were not the merchant rich, the laborer would 
be still poorer, for every article would be dearer ; and, 
besides, there would be no one to pay for the labor with 
which alone he is able to purchase it. Were not the 
merchant to be at his desk, the poor man would have no 
labor to do in the street ; and were not the merchant 
able to ride in his carriage, the laborer would be obliged 
to go barefoot. And accordingly, we see that when- 
ever mercantile business, that is, the business of ex- 
changes, is the most successful, then are the means of 
living cheaper in proportion ; and then are the operative 
classes richer ; and the avenues to riches the most widely 
open to all. 

The persons who conduct the exchanges of a com- 
munity are called merchants. They are of two classes, 
viz : Retail Merchants and Wholesale Merchants. 

The retail merchant carries on exchanges between the 
inhabitants of the same country. He purchases of the man- 
ufacturer or the importer, in quantities too large for the 
means of the individual consumer, and sells again in any 
quantities that the consumer may desire. This produces 
a great saving of time, and of course of expense, to the 
whole community. Were the manufacturer obliged to 
leave his labor, to sell a yard of calico, the price of cal- 
ico would be trebled. Were the importer obliged to 
open his hogsheads, to sell a pound of sugar, he must 
charge a price accordingly. And, besides, as each im- 
porter and manufacturer is supposed to confine himself 
to one particular product, the purchaser would be oblig- ■ 
ed, frequently, to go great distances, and transact with a 
great number of persons, business which he may now 
be able to accomplish with a single individual. Every 
one must thus perceive, that a consumer saves much 
time by purchasing his sugar, tea, coffee, pepper, salt, 
&c, at one shop, instead of going to the wholesale im- 
porters of these articles individually ; specially if, as is 



WHOLESALE MERCHANTS. 163 

frequently the case, they lived some hundreds of miles 
asunder. It is much more economical to buy needles, 
tape, cotton, calico, and silk, at one shop, than to go to 
the several individuals, in different places, who have im- 
ported or made these articles in large quantities. In 
consequence of this advantage to the community, the 
retail dealer is able to charge a profit on all the articles 
which he sells, and, at the same time, to furnish them at 
a much lower price than that at which the purchaser 
could procure them, in any other manner. The pur- 
chaser not only procures them cheaper, but he procures 
them of a better quality. It is the business of the re- 
tail dealer to understand the quality of every article in 
which he traffics, and it is for his interest to purchase it 
cheaply, and of as good quality as it can be purchased 
in the market ; since it is on the goodness and cheapness 
of his articles, that his custom depends. The consumer 
is thus enabled to employ for his benefit, a skill vastly 
greater than his own ; and at a much less cost, than that 
at which he could accomplish the business himself. 
Hence retail dealers are as necessary to the prosperity 
of a country, and to the cheapness of productions, as 
any other class of persons. And it will be found very 
universally, that it is much more economical to employ 
their services, than for a man to undertake to do their 
business for himself. 

The wholesale merchant, conducts the exchanges be- 
tween the individuals of different nations. He exports, 
in bulk, the commodities of his own country, and im- 
ports, in return, the commodities of another country. 
His own interest induces him to export whatever is at 
the lowest price in his own country ; that is, of what 
may be there in the greatest abundance ; and bring back, 
in return, whatever will command the highest price at 
home ; that is, of which there is the greatest need. 
And his own interest will, of course, teach him to pro- 
cure what he brings home, at the place where it can be 
had at the cheapest rate ; so that he may be able to fur- 
nish it at the hightest profit to himself, and at the lowest 
pfice to others. Hence his interest, and that of the 
community, are the same. It is for the interest of the 



164 WHOLESALE MERCHANTS. 

community that those commodities, of which we have a 
superfluity, should be exported ; and the fact of this su- 
perfluity is known by the reduction of their price, fn 
comparison with the price of other commodities at home, 
or of the same commodity in other countries. It is for 
the interest of the merchant to export the same commo- 
dity, because the lower the price at which he purchases 
it at home, on the better terms he can exchange it 
abroad. It is for the interest of the community, that 
those objects of desire which are most wanted should be 
brought back in return ; and the rise in their exchange- 
able value is the proof that they are so wanted. It is 
for the merchant's interest, also, to bring back these 
very commodities ; for, from these alone, can he expect 
gain, and that gain will be the greater, in proportion as 
he procures them on the most favorable terms ; that is, as 
he procures them where they are the cheapest and most 
abundant. Hence, his gain will be in proportion as he 
can transfer the productions of the earth from those regions 
where they are least wanted, to those regions where they 
are most wanted. And this is precisely what the interests 
of society require should be done. 

To the merchant, it is, of course, a matter of no con- 
sequence, what he exports and what he imports. Un- 
less a commodity were more wanted at home than that 
for which he would exchange it, he could have no mo- 
tive to make the transfer. And that it is so wanted, is 
evident from the fact, that the community is willing to 
give a higher price for it than for that which is exported. 
If he desired it, he could not make any profit, except 
by consulting the wants of the community ; and that 
profit will be the greater, in proportion as he is able to 
consult those wants with the greatest possible nicety. 
His gains are the gains of the community, and his losses 
are the losses of the community. Hence, there is no 
reason why he should, in any manner, be restricted in 
the nature or the quantity of the articles which he exports 
or imports. The constitution of things, and his own 
self-interest, provide all the regulating forces which the 
nature of the case requires. 



EXCHANGEABLE VALUE OF PRODUCTS. 165 

SECTION II. 

THE GENERAL DOCTRINES OF EXCHANGE. 

1. Of the rate of Exchange, or the exchangeable 
value of Products. 

If two men have created their respective products, 
and are prepared to exchange them, it is manifest that 
they will not commonly exchange them, quantity for 
"quantity ; because a given amount of labor will procure 
a much larger amount of some products than of others. 
The same labor which will procure an ounce of gold, 
will procure an hundred pounds of iron. Hence, the 
gold miner will offer to exchange labor for labor ; that 
is, an ounce of gold for an hundred weight of iron. 
And, if the miner of iron will not exchange on these 
terms, the miner of gold will procure his iron for him- 
self. Since, if he can thus procure it for himself, by a 
less amount of labor, than by exchange, he will do so. 
Hence it is, that the general rate, at which every thing 
is exchanged, is the amount of labor which it costs to 
produce it. 

But we have previously seen, that labor appears in 
two, forms, that of annual capital, and of fixed capital. 
Both of these enter into consideration, when we speak 
of labor as determining the exchangeable value of 
products. 

For instance : Suppose I purchase wheat, and grind 
it by hand ; I sell it again at an additional price, pro- 
portioned to the labor which I have bestowed upon it. 
Suppose I thus earn money enough to erect a wind- 
mill ; I shall then be entitled to the same amount of 
wages per day for my labor, and also to an additional 
sum sufficient to pay the interest of what was expended 
in my wind-mill, and also to pay for its wear and tear, 
in performing the operation. The price of grinding 
was, at first, only that of immediate labor ; it is now the 
price of immediate labor, together with the interest on 



166 EXCHANGEABLE VALUE OF PRODUCTS. 

the amount of the pre-exerted labor. It is however to 
be observed, that notwithstanding I am receiving emolu- 
ment from two sources, and am growing rich faster than 
before, it is on terms vastly more favorable to the com- 
munity, inasmuch as I can, for the same remuneration, 
give ten times as much in return as I could before. 

The case is the same, if two separate individuals are 
employed in the operation, the one owning the capital 
or stock, and the other performing the labor. In this 
case, the cost consists of the wages of labor, and of the 
interest on, and the wear and tear of, the capital. Here, 
however, as before, the community is the gainer ; be- 
cause, for the wages of labor and interest on capital, it 
receives a much larger product than it received before, 
for the wages of labor alone. Thus, if a machine cost 
one thousand dollars, and there were paid for the use of 
it one hundred dollars a year, this, added to the wages 
of labor, at a dollar a day, would be four hundred dol- 
lars, allowing three hundred working days a year. This 
would be but one hundred dollars more than would be 
paid for the labor of the man alone. But a man, with 
such an instrument, would, probably, in a year, accom- 
plish ten times as much work as he could accomplish 
without it. All the gain of the change is, therefore, for 
the benefit of the public. We see, therefore, that labor 
and the interest of capital, must, necessarily and justly, 
enter into the price of every product which is offered 
in exchange. The producer can never, for a long pe- 
riod, charge more than a fair remuneration for his labor 
and capital ; because, then, it would be cheaper for the 
other party to produce it for himself. He cannot, for a 
long period, charge less ; because, in this case, he will 
be ruined, and must leave the employment ; and thus the 
number of producers will be diminished, and the value 
of the product will rise to the average rate of profit. 

Nevertheless, for short periods, the exchangeable 
value of any product may be raised above the reason- 
able rate of profit. If the demand exceed the supply, 
there will be a competition among the buyers ; the more 
wealthy will overbid the less wealthy, and the price will 



EXCHANGEABLE VALUE OF PRODUCTS. 167 

rise. This rise of price will induce others to devote 
themselves to supplying the demand, and thus the price 
will fall. If the supply be greater than the demand, 
there will arise a competition among the sellers, and the 
price will fall, and will remain depressed, until either 
the demand increase, or else until, so many leave the 
employment, as shall reduce the supply to the average 
demand. 

It is evident that it makes no difference as to the 
result, whether the ratio between supply and demand be 
disturbed by a change in supply or in demand. If the 
demand continue the same, a diminished supply pro- 
duces the same effect as would be produced by an in- 
creased demand, while the supply remained the same. 
And, on the other hand, demand being the same, an 
increased supply produces the same result as when, sup- 
ply being the same, the demand is increased ; that is, in 
the one case, the exchangeable value of the product will 
rise ; in the other case, it will fall. 

It deserves, however, to be remarked, that this effect, 
produced by the disturbance of the ratio between supply 
and demand, will be greater or less, according to sev- 
eral circumstances. These are : 

1. The durability of the commodity. If it be one 
which, unless it be consumed immediately, will become 
worthless, the fall of price, from increased supply, is 
great. Such is the case with oranges, lemons, figs, 
fresh fish, &c. If, on the contrary, it be a commodity 
which will endure for years, without loss of intrinsic 
value, the effect will be less. Thus, an increased sup- 
ply of iron, produces in the market a comparatively 
small variation in the price. 

2. Variation of price, from this cause, depends, also, 
upon the ease or difficulty with which the supply may 
be increased. Thus, manufactured articles can gener- 
ally be produced in a short time, and, if necessary, in a 
much more than usual quantity. Agricultural products, 
on the contrary, require a year, in order to be brought 
to perfection. Hence, if a crop fail this year, we know 
that there must be a diminished supply in the whole 



168 EXCHANGEABLE VALUE OF PRODUCTS. 

country, for the remainder of the year ; and hence, as 
there must be a scarcity, every one is prepared to give 
as much as he is able. But, if cotton cloth be high, 
unless the rise of price be owing to a diminished pro- 
duction of the material, this high price will cause more 
cloth to be made, and hence, before long, the price will 
fall. We therefore purchase only as much as we abso- 
lutely need, and wait for the favorable change. 

3. It will be affected by the nature of the demand 
for the article. If it be an article of universal neces- 
sity, it will rise more rapidly by scarcity, and sink less 
rapidly by increased supply ; while, if it be an article of 
mere luxury, it will rise less rapidly by scarcity, and 
sink more rapidly by increased supply. When every 
one must have a commodity, the demand is constant, 
and every one is alarmed at the prospect of suffering ; 
hence, he purchases it at any price. And, on the other 
hand, if the supply be abundant, the holder knows that 
the ordinary consumption will soon reduce the quantity 
in market, and rather than sell at a reduced profit,, he 
will wait for the change of price. On the contrary, if 
an article of luxury be scarce, men begin to abandon it, 
and thus the demand is quickly reduced. If it be abun- 
dant, the number of purchasers does not increase with 
the supply, because men have not yet learned to use it ; 
hence, its fall in price is rapid, being not sustained by a 
correspondent increase of demand. 

These, I think, are the principal circumstances which 
enter into the exchangeable value of products. They are 
variously combined and modified, so that they may some- 
times counteract, and sometimes exaggerate each other. 
But, I think, that, by applying them to the actual occur- 
rences of life, we may generally be able to explain the 
fluctuations of price, which are daily taking place in the 
market. 

II. When an article of produce is offered for ex- 
change, the producer has conferred upon it his last 
value, and it is now ready for the consumer. 

By the consumer, here, I do not mean him only who 
gratifies his desire by the ultimate destruction of the 



RAPIDITY OF EXCHANGES. 169 

product, but also him who receives it for the purpose of 
giving to it some other modification. The exchanger 
confers upon it no new value. It is the same when it 
passes out of his hands to the consumer, as when it 
came into his hands from the producer : that is, in gen- 
eral, exchange confers no value at all upon products ; 
since they receive no modification by passing from the 
hands of one person to those of another. 

1. Hence, it will be seen, that the more rapidly ex- 
changes are made, the better- The more rapidly they 
are made, the less is the loss of interest, and the smaller 
the advance which the exchanger must charge for his 
labor. If a merchant purchase to-day a thousand dol- 
lars' worth of iron, which he sells to-morrow, he charges 
us for his labor and skill, and adds only the interest for 
one day upon his capital. If he must keep the iron a 
whole year before he sell it, he must charge the interest 
of a whole year, or else he will be the loser by his 
operation. 

Nor is this all. If he sell his iron to-morrow, he 
may invest the same sum in iron, and sell it again fifty 
times in the course of the year ; and thus receive a 
profit fifty times a year, upon the use of his skill and 
labor, while, in the other case, he receives this profit 
but once. Hence, when exchanges are rapid, he can 
afford to exchange at a less rate for his labor and skill, 
than when they are slow. And hence, brisk exchanges 
are for the benefit of both buyer and seller ; and a ben- 
efit to one, is a benefit to all. It is for this reason, 
among others, that we can frequently purchase at a 
cheaper rate in a large city, than in a country town. 

2. And hence we see a reason, why the profit upon 
one operation in some kinds of exchange, is greater than 
that in others. The profits of the wholesale merchant 
on a pound of tea, are, for instance, greater than those 
of the retail merchant. He who sends his capital to the 
East Indies, and receives in return a cargo of teas, 
must charge interest and risk, for the whole time con- 
sumed, from the day that he parts with his property, 
until the day that he receives it again. This may be 



170 DIFFERENCES OF PROFIT. 

nearly two years. The retail merchant who purchases 
one of those chests of tea, may sell it all in a week, and 
thus invest it fifty times in the course of a year. 
Now, if the profit on an exchange were as great in the 
one case as in the other, the annual gains of the retail 
merchant would be exorbitant. These are reduced, by 
competition, to the average level ; and hence, his gains 
on any single operation are much less than those of the 
wholesale merchant. The same principle applies to 
production. The greater the time consumed in an op- 
eration, the larger is the profit on each article which 
justly belongs to the producer. 

3. But, though the act of exchange add nothing to 
the absolute value of the commodity, it adds greatly to 
its relative value, that is, to the convenience both of 
the buyer and the seller ; inasmuch as it enables both to 
gratify a desire, which, otherwise, would have been un- 
satisfied. If I want a pen-knife more than I want a 
dollar, and a hardware merchant wants a dollar more 
than he wants a pen-knife, we make the exchange with 
each other. The dollar is the same as before ; it will 
buy no more in his hands than it will in mine. The 
pen-knife is the same as before ; it has neither gained 
nor lost ; and I might, if I chose, exchange it with the 
next man I met, for a dollar. But, both the merchant 
and myself are benefited by the exchange. I can use 
the knife for purposes for which I could not use the 
dollar ; and thus render my labor per day much more 
valuable. The merchant has received a full remunera- 
tion for his labor, capital, and skill, and is, by so much, 
richer than be was before. That both of us have been 
benefited by the exchange, is evident from the fact, that 
neither of us would make the exchange back again. 
If a hungry man have a piece of silver, and a baker 
have a loaf of bread, they will readily exchange with 
each other. The silver is the same, and the loaf is the 
same, as before ; but still, both parties are richer and 
happier ; and neither would the hungry man take back 
the same piece of silver for his loaf ; nor the baker take 
back the loaf for the silver. 



DIFFERENCES OF PROFIT. 171 

The case is the same with nations. If a nation ex- 
change iron, of which it has more than it can consume, 
for wheat, which it cannot produce, with a nation which 
has more wheat than it can consume, but produces no 
iron, the wheat and the iron are the same as before ; 
but each nation is richer and happier : each has one 
more desire gratified than before, and is able the next 
year to increase, more largely, its stock of production. 
That both are happier than before, is evident ; because 
neither would reverse the exchange, if it were in its 
power. And thus, in general, whenever two nations 
mutually wish to exchange their productions with each 
other, and are mutually gratified when the exchange is 
made, it is evident that both are made happier, and that 
the exchange has been advantageous to both parties. 

Hence we see, how fallacious is the notion formerly 
entertained, that, by exchange, only one party is bene- 
fited ; and consequently, that what one party gains, the 
other party loses. Were .this the case, no country could 
grow rich by exchange, unless by impoverishing every 
other country ; and the gain of one nation, would be 
nothing else than a transfer of the wealth of other coun- 
tries to itself. On the contrary, precisely the reverse is 
the case. The most favorable commerce to any one 
country, is, that by which the riches of both countries 
are the most rapidly increased. A merchant, whose 
gains were all derived from the impoverishment of his 
customers, would very soon have none but paupers for 
neighbors. A nation, whose traffic caused the impov- 
erishment of another nation, would very soon be obliged 
to discontinue commerce- The only traffic of this sort, 
is the African slave-trade, and the result has been the 
almost entire depopulation of the slave coast. And thus, 
we see, in political economy, as in morals, every benefit 
is mutual ; and we cannot, in the one case, any more 
than in the other, really do good to ourselves, without 
doing good to others ; nor do good to others, without 
also doing good to ourselves. 

In what I have said of exchange, it is to be observed 
that I have spoken of exchange simply, and not as com- 



172 CONDITIONS OF EXCHANGE. 

bined with the labor of transportation. The labor of 
transportation gives an additional value to an article ; 
that is, it confers upon it change of place. This has 
been already spoken of. It is true, a merchant frequent- 
ly performs this labor, or causes it to be performed. In 
this case, he is entitled to a double profit ; first, for the 
labor of transportation, and secondly, for the labor and 
skill of exchange. He who labors in either of these 
employments, is entitled to the profit derived from that 
in which he labors ; and, he who labors in both, is enti- 
tled to the profit of both. In' speaking of the profit of 
exchange, it is always to be observed, that the profit of 
the merchant is derived," partly, from his labor and skill, 
and partly from his capital. He who exports to France 
one hundred thousand dollars' worth of cotton, must first 
buy the cotton ; that is, he must have one hundred thou- 
sand dollars to invest in this exchange. He exchanges 
the cotton for silks or for calicos, and replaces his first 
investment. He is entitled to interest and risk on that 
capital, for all the time that it is out of his hands, besides 
the remuneration for his labor and skill. 

III. Of tlie conditions on which the frequency or in- 
frequency of exchanges depends. 

It is manifest that the more numerous are the ex- 
changes, the better must it be for a community. As no 
one exchanges, except to gratify his desires, and to im- 
prove his condition, the more numerous the exchanges, 
the greater the number of desires which will be gratified, 
and the more universally will the condition of a people 
be improved. It is also evident, that facility of ex- 
change is one of the greatest stimulants to production. 
If a man cannot transform his products into what he de- 
sires, he will labor for nothing but the mere necessaries 
of life. But in just so far as he is able, by exchanging 
the products of his labor, to procure objects of desire, 
his motives to industry will be quickened. And the 
same is true of nations. Every one, whether poet, or 
philosopher, or traveller, in setting forth the prosperity 
of a country, has described its harbors thronged with 
ships, its roads covered with merchandise, and its sails 



CONDITIONS OF EXCHANGE. 173 

whitening every ocean. But all these are only so many 
forms of expressing the general fact, that a nation's ex- 
changes, both internal and external, are abundant and 
prosperous ; that is, that its producers are able, by their 
own labor, easily to avail themselves of every other pro- 
duction which they may desire. 

We have said that exchange is a voluntary and mutual 
transfer of the right of property. 

If this be the case, there must exist, in each party, 

1. A mutual desire for the property of the other, 
greater than the desire for his own. 

2. Mutual ability ; that is, each party must be able to 
offer to the other, such a consideration as will induce 
him to make the exchange. 

Where both of these exist, exchanges will, of course, 
take place. If A have a dollar which he wishes to part 
with for B's knife, and B has a knife which he wishes to 
part with for A's dollar ; as soon as each knows the wish 
of the other, they will mutually gratify each other, and 
the exchange will take place. 

3. As, however, the right of property alone is fre- 
quently transferred, while the property itself is not de- 
livered at the time of the exchange, there is always, in 
such an act of exchange, a liability to fraud. Besides, 
a commodity may not prove to be as good as it was rep- 
resented, or the owner's title may not be satisfactory. 
In all such cases, there is an opportunity for the practice 
of dishonesty ; and the risk of suffering from such dis- 
honesty, would, of course, diminish the frequency of 
exchanges. Hence, frequency of exchanges will also 
depend upon security of the right of property, and the 
existence of the means for enforcing that right. 

If we now reflect upon these facts, I think we must 
perceive, that the desires of a people for exchange, will 
depend, principally, upon their intelligence. Their abil- 
ity will depend upon the productiveness of their labor and 
capital ; and the security of property will depend upon 
their individual and social morality. That is, exchanges 
will be frequent in proportion to the intelligence, wealth, 
and moral character of a people. 
15* 



174 CONDITIONS OF EXCHANGE. 

1. Exchanges will be frequent or unfrequent, in pro 
portion to the intelligence or ignorance of a people. It 
is only by the diffusion of knowledge that men ascertain 
how their desires may be gratified. It is by knowledge 
that the desires of man are brought into relation with the 
objects intended by his Creator for their gratification. 
Every one knows how the dormant desire for exchange 
is awakened in the bosom of a child, the moment he 
enters a toy shop. I suppose that strangers rarely pass 
through the streets of a large city, without being strong- 
ly, if not successfully tempted to lighten their pockets, 
before the termination of their journey. Every reader 
knows, how quickly his desire for books is enkindled, 
by passing a few minutes in a book store. And thus we 
see, how instantaneously a desire for exchange arises in 
the breasts of savages., as soon as they are brought into 
contact with civilized man. A multitude of objects for 
the gratification of desire, of which they were previously 
ignorant, is set before them ; and they are frequently 
stimulated to exchange, to their own disadvantage. The 
early voyagers give us striking illustrations of this fact. 
They represent themselves as overwhelmed with these 
rude people, who were incessantly offering every thing 
which they supposed their visitors would desire, for nails, 
beads, pieces of looking-glass, iron hoops, and almost 
every thing on which they could lay their hands. 

When, however, I speak of intellectual cultivation 
in this connexion, it is to be understood that I by no 
means refer exclusively to the knowledge and mental 
discipline which is acquired by the reading of books. 
Books, though important to the intellectual progress of 
a country, are only one means of introducing and circu- 
lating knowledge. Knowledge is gained by observation, 
and by conversation ; and it is, if I may say so, absorb- 
ed from the intellectual atmosphere which we breathe ; 
it is derived from the general spirit of the community in 
which we live. Thus, a man rarely goes from home in- 
to another country, or into another section of the same 
country, without obtaining a knowledge of various con- 
veniences of which he was before ignorant. Familiar 



CONDITIONS OF EXCHANGE. 175 

intercourse between men of different pursuits, conduces 
to the same result. Newspapers, filled with advertise- 
ments, circulated over every district of a country, have, 
in this respect, a powerful effect. All these causes 
combine to show every individual what he can produce 
which other men want, and how he may, by exchange, 
procure from them what he wants himself. 

We see all this illustrated, in every district separated 
by nature from the surrounding country, as a valley in- 
closed by mountains difficult of access, or an island 
which has but rare communication with the main land. 
The progress of such a population in the arts, and in 
possessing themselves of the conveniences of life, is al- 
ways much less rapid than that of their more highly 
favored neighbors. They know but little of what is go- 
ing on around them, and their desires are but feebly 
stimulated to improve their condition. The state of 
such a population is always suddenly and rapidly improv- 
ed, by any means of easy communication with their 
neighbors. They are stimulated at once to develope 
their own resources, and thus to share in the benefits 
enjoyed by those around them. Thus, the Pastor 
Oberlin, a truly great and good man, when he wished to 
improve the condition of the Ban de la Roche, com- 
menced by inducing his people to repair their roads. 
Hence we see, how important, in this respect, to a 
nation, are all means of internal communication, and the 
facilities for the universal circulation of the commonest 
forms of knowledge. 

2. Exchanges will be numerous, in proportion to the 
producticeness of a country. 

We have already seen, that simple desire, in both 
parties, is not sufficient to effect exchanges. Each party 
must both possess, and be willing to part with, so large 
a portion of the product desired by the other party, that 
the other is willing to make the desired exchange. 
Every man desires a horse and carriage, and every man 
who either raises horses or manufactures carriages, is 
willing to part with them for an equivalent. But until 
every man have something to offer for a horse and car- 



176 CONDITIONS OF EXCHANGE. 

riage, which will induce the other parties to make the 
exchange, every one cannot be so accommodated. If 
A have wheat which he is willing to exchange for 
rye, but if B either have no rye which he is able to of- 
fer in exchange, or have it not in sufficient quantity to 
remunerate the labor of A, no exchange can take place. 
But if both have been successful, and each have enough 
of his own product for his own use, and is also able to 
offer, on fair terms, a portion in exchange, they may 
then exchange with advantage, and, of course, they will 
do so. 

Or, again : If A and B have only so much surplus 
product as will enable them to make this one exchange 
with each other, much as they may desire the product of 
C and D, these last desires must be ungratified ; since 
no further exchange can take place. Or, on the contra- 
ry, if A and B have abundance, but C and D have 
been unfortunate, and have nothing which they can part 
with, the same result will take place. But let A, B, C and 
D be all blessed with abundance, and all have surplus prod- 
ucts which they are willing to exchange with each other, 
and in such proportions as will reward each other's indus- 
try, and they will all exchange accordingly. Thus, ex- 
changes must always be most numerous, in the most pros- 
perous condition of a country ; or, as every one knows, 
mercantile business is most prosperous, that is, exchanges 
are most abundant, when manufacturing, agricultural, and 
all other kinds of industry are most productive. 

And we see, moreover, that this principle is of uni- 
versal application. A good harvest in one country, is a 
benefit to every other country ; because the favored 
country desires a larger amount of the productions of 
her neighbors, and has a larger fund wherewith to pay 
for them. Hence, the exchanges between such a coun- 
try and every other country, are increased. On the 
contrary, a famine, or a war, or any other calamity in 
one country, is a calamity to every other country, be- 
cause the unfortunate country wants fewer of the pro- 
ductions of its neighbors ; since it has less wherewith to 
pay for them. Its exchanges, therefore, are of necessi- 



CONDITIONS OF EXCHANGE. 177 

ty diminished. Hence, that merchant is short-sighted, 
as well as morally thoughtless, who expects to grow 
rich by short crops, civil dissensions, calamity, or war, 
in the country with which he traffics. A wiser and fur- 
ther-sighted reflection, would teach him that it is very 
difficult to grow rich by trading with beggars, and that the 
benefit of one is always the benefit of all. To illustrate 
all this by a single case, let us ask what would be the 
amount of exchange effected by the inhabitants of Great 
Britain, France, and the United States, either among 
themselves or with each other, if the productiveness of 
these several countries were no greater than it was in 
the time of Julius Csesar ? 

3. Exchanges will be numerous in proportion to the 
moral character of a people. 

1. Individual morality is highly favorable to exchange, 
inasmuch as it lessens the liability to fraud, and, of 
course, the risk to which exchanges are exposed. No 
one will, if he can avoid it, trade with a knave. In 
proportion to the prevalence of knavery, will be the dis- 
inclination to exchange. 

2. On the general moral character of a people depend 
the equity of their laws, and, of course, the full enjoy- 
ment of the right of properly. As has before been re- 
marked, exchanges are not always completed at the in- 
stant. One party frequently parts with his property to- 
day, on condition of receiving the property of his neigh- 
bor a month hence. Here is a liability to fraud. Un- 
less the one party have, by means of just and equitable 
law, the power of enforcing contracts, exchanges will be 
greatly restricted. 

3. On the morality and intelligence of a people, will 
greatly depend the freedom of its civil constitution ; 
that is, the accuracy with which it limits the power of 
society, over the person and property of the individual. 
When these are improperly understood, or insufficiently 
guarded, the property of the citizen is liable to suffer 
from the avarice or the oppression of rulers. To this 
evil, property, undergoing exchange, is specially liable. 
Exchange exposes to the view of the public, the posses- 



178 STAGNATION OF BUSINESS. 

sion of the parties, and, of course, enables a tyrant to 
seize upon them with greater certainty. For this reason, 
exchanges are frequently, under bad governments, made 
in secret ; and, for this reason, under such a govern- 
ment, they are always as few as possible, and at great 
expense to the consumer. 

Thus, in general, the frequency of exchanges will be 
in proportion to the wealth, and to the intellectual and 
moral character, of a people. And since, as the pro- 
gress of a nation, in these respects, will promote her 
mercantile prosperity, we may easily see what will de- 
press it. The frequency of exchanges will diminish, as 
a nation decreases in intelligence arid virtue. Of the 
truth of this remark, all history is filled with illustra- 
tions. After what has already been said, it will not be 
necessary to enlarge upon this topic. These effects, 
moreover, are principally to be observed, by comparing 
the condition of a country at long periods ; and tracing 
the effects of measures and events in those directions 
which are not always obvious to every observer. 

While, however, the government and laws of a coun- 
try remain the same, there frequently occurs a tempo- 
rary diminution of exchanges, which is denominated a 
stagnation of business. This deserves to be noticed. 
As the business of a merchant is to execute exchanges ; 
that is, to perform the labor of exchanging, for those 
who wish to exchange their products, a stagnation of 
mercantile business must occur, when there is less of 
this operation to be performed ; that is, the merchant is 
ready to perform the exchange, but a less number of 
persons desire it to be performed. 

The reason why the merchant feels this more serious- 
ly than any other man, is obvious. All his capital is 
invested in this kind of operation. He buys of one 
party, that is, invests his capital in one kind of product, 
and sells to another, that is, receives his product in ex- 
change, and he supports himself by the profit of these 
two operations. The moment exchanges cease, his 
means of support are dried up ; for he is supported only 
by making them. He can buy, but he cannot sell. 



STAGNATION OF BUSINESS. 179 

Hence there arises, as it is called, a stagnation of busi- 
ness ; that is, a cessation or diminution of exchanges. 
The principal causes of this, are the following : 

1. It may arise from a diminished desire for a partic- 
ular product. Thus the decrease of the Catholic reli- 
gion, during the wars of the French revolution, dimin- 
ished the desire for fish, which the Catholics eat in 
Lent, and on fast days. This produced a stagnation of 
business in the fish trade. 

It may arise from change of fashion. Thus, when 
shoe-strings were substituted for shoe-buckles, the de- 
mand for shoe-buckles ceased ; the manufacturers of 
shoe-buckles were thrown out of employment ; and 
there was a stagnation of business in this kind of trade. 

It may arise from the fact, that one particular product 
has been supplanted by another. Thus the increasing 
cheapness of cotton cloth, has materially diminished the 
demand for linen. 

Whenever, from any cause, the desires of men change, 
then the traffic in the article neglected, must be dimin- 
ished ; since it is very difficult to sell to a man a com- 
modity which he knows he does not want. To this 
disadvantage, all articles which derive their value from 
fashion and caprice are exposed ; and, on this account, 
they are always sold at a higher profit, in order to com- 
pensate for the additional risk. 

2. Stagnation in business may arise from a temporary 
failure in production. This must, of necessity, produce 
it ; since, as we have already seen, two men cannot ex- 
change, unless they both have something to part with ; 
and the amount and number of every man's exchanges 
will be in proportion to the amount which he is able to 
part with, and the amount- which others are able to offer 
him in exchange. * Thus, if the crop of sugar should be 
reduced one half, there would be a stagnation in the sugar 
business ; that is, there would be but hal<f the quantity 
of sugar to be exchanged, and half the quantity of other 
things could be exchanged for it ; in other words, half 
the number or amount of exchanges would be made. 
A.nd, in general, the failure of any crop, or the diminu- 



180 STAGNATION OF BUSINESS. 

tion of any kind of production, must cause a stagnation 
of business in that article itself, and also in whatever is 
usually exchanged for it. Thus, also, if production lan- 
guish from civil war, or from insecurity of property, ex- 
changes of all kinds diminish, towns are depopulated, 
harbors are deserted, and the accumulated treasure of 
past generations insensibly melts away. 

3. A glut, or stagnation of business, may also arise 
from comparative poverty in one of the parties making 
the exchange. If a nation is able to produce but one 
hundred thousand dollars 1 worth of exports, it can pur- 
chase but one hundred thousand dollars' worth of im- 
ports. This, then, will generally be the annual amount 
that will be brought to its market. But if, from any 
cause, a larger amount, say one hundred and fifty thou- 
sand dollars' worth, is brought thither, there will arise a 
glut, or temporary stagnation of business. There will 
be fifty thousand dollars' worth more than can be ex- 
changed. The reason is not, that they do not want the 
additional fifty thousand dollars' worth of the productions 
of other countries, but that they have nothing with which 
to purchase it. Hence, after one hundred thousand dol- 
lars' worth have been purchased, there will be sellers, 
but no buyers. It will be seen, however, that such a 
case can generally exist only in new, small, or in very 
unproductive countries, or for short periods ; or else 
in respect to articles of which the consumption of the 
whole community is but small. 

4. A stagnation of business may be the effect of leg- 
islation. Suppose the importation of coffee into this 
country be a million pounds per annum. This must be 
paid for, in some way, by the productions of our own 
industry ; and the demand for those productions to this 
extent, is for the sole purpose of paying for this coffee. 
There must, of course, be a great variety of exchanges 
required to collect these products, to bring them to the 
seaports, to exchange them for coffee, and again to circu- 
late this coffee throughout the country. Now, let a duty 
be laid upon coffee, which shall double its price, and 
thus diminish its consumption one half. The demand 



LEGISLATIVE ENACTMENTS. 181 

for one half of the products by which it was paid for, 
ceases, the demand for coffee, to this extent, also ceas- 
es ; and the labor of transportation on both articles is 
reduced one half. Here must be a stagnation of busi- 
ness, in both of these articles ; and half the shipping 
thus employed, will, for a time, be useless. Hence, 
there must, of course, arise a stagnation of business ; 
that is, a permanent diminution of exchanges, in all the 
departments of industry affected by this arrangement. 
The same effect will be produced by any act of- legisla- 
tion by which public confidence is shaken, the currency 
disordered, or the facilities of exchange diminished. 

IV. Of the effects of legislative enactments on Ex- 
change. 

I think it too obvious to need remark, that duties on 
imports can have no favorable effect on exchange. 
Their only effect must be, to raise the price of the 
products, and, of course, to diminish the ability in both 
parties to exchange. Every one knows that the ex- 
changes between two places are diminished by any nat- 
ural obstacle to communication. If a road were so bad 
that it cost five dollars per hundred weight to transport 
merchandise between two places, every one knows that 
exchanges between these places would be fewer than 
they would be if the road were improved, so that trans- 
portation could be effected for twenty-five cents per hun- 
dred weight. Now, it makes no difference whether this 
additional four dollars and seventy-five cents be the re- 
sult of the badness of the road, or of a transit duty be- 
tween the two places. The diminution of exchange 
which it causes, will be precisely the same. In a severe 
winter, our northern harbors are closed, for weeks or 
months, by the ice. This is a natural tariff, and imposes a 
large protecting duty, inasmuch as exchanges must be ef- 
fected, if they be effected at all, at a vastly greater price 
than in summer. It is not generally believed, that this in- 
creases the number of exchanges ; nor have I ever heard 
it mentioned, as favorable to domestic industry. 

I therefore think it evident, that government can do 
nothing to facilitate exchanges by means of discrimi- 
16 



182 LEGISLATIVE ENACTMENTS. 

netting duties. They have, however, attempted to ac 
complish this result, by means of bounties on particular 
exports. 

The manner in which this is accomplished, is this. 
Suppose we were not able, profitably, to produce and 
offer to other nations in exchange, some particular arti- 
cle, say, for instance, iron. To encourage this export, 
a bounty is granted on every ton of iron exported, equal 
to the difference between our cost of producing it, and 
that at which other nations produce it. Our producer 
can then sell it in a foreign port, as cheap as the pro- 
ducer from another nation. But where does this bounty 
come from ? Why, it is from a duty laid on some other 
import, or else from a tax laid on some other product. 
The iron worker is no better off than any other man, 
and all the other exchangers or producers, or both, are 
just so much worse off; and the value of capital and 
labor is, by the whole operation, diminished, as we have 
shown in the article on the effect of legislative enact- 
ments upon production. Did any merchant ever grow 
rich by selling under cost, for the sake of competition 
with his neighbor? It would be very difficult to show 
how a nation can grow rich in the same way. But, as 
the principles, on which this discussion depends, have 
been already treated of in the article above alluded to, 
I need not here repeat them. 

If, then, governments can do nothing in this manner 
to promote the business of exchanges, in what manner 
may exchange be effected by legislation ? 

We have said that exchanges are the natural result of 
mutual desire and mutual ability. In what manner may 
these be influenced by legislative enactments ? 

1. Of Desire. If by desire be meant the original 
impulses implanted in the bosom of man, it is evident 
that these can be neither increased nor diminished. 
These are a fixed quantity, with which we cannot inter- 
fere. These desires, however, generally remain dor- 
mant, until they are awakened into exercise by the pres- 
ence, or by the knowledge, of their appropriate objects. 
It is by a knowledge of the existence of these objects, 



INTERNAL IMPROVEMENTS. 183 

therefore, and of the modes by which they may be ob- 
tained, that the desire for exchange is excited. Hence, 
it is plain, that the desire for exchange may be in- 
creased ; 

1. By the general diffusion of knowledge, especially 
of that sort of knowledge by which man is taught how 
he may benefit his condition. This will be accom- 
plished, generally, by a universal diffusion of the means 
of common education. 

2. By removing all impediments to the diffusion of 
knowledge. In this respect, a duty on imported books, 
which is really a tax on knowledge, is, in a free govern- 
ment, exceedingly injudicious. 

3. By increasing the physical means for the dissemi- 
nation of knowledge and intelligence. This will be 
done by allowing every facility for internal improve- 
ment ; by an efficient and cheap post-office system, per- 
vading every portion of the country, and bringing to 
every man's door the information circulating throughout 
the civilized world. 

I do not know that a government can do more than 
this to excite in a people the desire to exchange. 

2. Of Ability. The ability to exchange depends, 
as we have shown, upon productiveness. Hence, every 
means by which the productiveness of industry is in- 
creased, will also benefit exchange. These have al- 
ready been alluded to, in the former book, and need not 
here to be repeated. 

There is, however, one branch of productive industry 
which is more immediately connected with exchange 
than any other, and which deserves, on that account, in 
this place, a more minute consideration. I refer to in- 
ternal improvements. On this, I shall offer a iew re- 
marks. 

An internal improvement, is any means by which the 
operation of change in place may be performed at a less 
expense than formerly.' It is, in fact, a labor-saving 
machine, peculiar to this branch of industry. Of those 
at present in use, the most common are roads, railways, 
and canals. 



184 INTERNAL IMPROVEMENTS. 

What is peculiar to these machines, is, First, they are 
very costly, and hence, in general, require more capital 
than can be commanded by a single individual ; and, 
therefore, must be owned by a number of persons asso- 
ciated together. Secondly : they must pass through the 
lands of various individuals who have no special interest 
in them, and are thus liable to interfere with the right 
of property. This interference can be allowed only by 
the whole community ; and, hence, there arises a neces- 
sity for legislative enactment, granting permission to this 
effect. 

Now, inasmuch as such machines, if properly con- 
structed and skilfully managed, are greatly for the ben- 
efit of the whole society, it is manifestly the duty of 
society to grant all suitable facilities for constructing 
them. Inasmuch, however, as they, like any other 
privileges, are liable to be abused, and may, in the end, 
injure the interests which they were intended to benefit, 
it becomes a legislature, on all such occasions, to re- 
serve, at the outset, the right of visitation ; the power 
to modify or amend, on equitable terms, the privileges 
granted, in such manner, as the exigencies of the public 
may require. 

Whether a government should itself undertake the 
work of internal improvement, is, however, not so clear. 
On this subject, it may be suggested : 

1. If it loill not be profitable ; that is, if capital thus 
invested will not be as productive as that invested in 
other employments, it ought not to be undertaken by the 
public, because the capital thus invested must be taken 
from other employments ; that is, it must be taken from 
a more productive, to be invested in a less productive 
employment. If it be said, though it be not itself pro- 
ductive, it may enrich the district in which it is con- 
structed ; the answer to this is, then let that district pay 
for it, unless it can be shown to be either wise or just, 
to impoverish one district, for the purpose of enriching 
another. 

2. If it will be productive, private associations, in an 
intelligent community, will, with proper encouragement, 



INTERNAL IMPROVEMENTS. 185 

be ready to undertake it. And of the question of prof- 
itableness, private individuals will judge much more ac- 
curately than a government, because the facts are equal- 
ly known to both ; the degree of intelligence is likely to 
be as great in the one case as in the other ; and the one 
party can be influenced by no motive but self-interest, 
which is here also the interest of the public ; while the 
other party may be influenced by party politics, section- 
al jealousy, love of power, and a thousand disturbing 
causes. 

3. A work of this sort will be executed at much less 
expense by private individuals, than by a government. 
The costliness of all public works is everywhere pro- 
verbial. The greater the number of intermediate agen- 
cies by which any work is performed, the more imper- 
fectly is the work done, and the greater is the unneces- 
sary expenditure. Now, government is itself an agent. 
It must perform the work by means of another set of 
agents. Under these may be half a dozen others, in the 
form of contractors, and sub-contractors. All these un- 
necessary agencies must be paid out of the public purse, 
and their accounts adjusted by those who have no spe- 
cial motive to encourage economy. All this is reversed, 
when those, who conduct the work, pay for it them- 
selves, and whose profits, in the end, must depend upon 
the goodness of the work, and the cheapness of its ex- 
ecution. 

4. A work of this kind, when completed, will be 
more faithfully superintended by private, than by pub- 
lic owners. The private owner knows that he must 
conduct his operation economically, and maintain the 
favor of the public, or else he will gain nothing by his 
investment. A government is under no such salutary 
check. 

5. But a still stronger objection to the confiding of 
such works to the public, is, the amount of patronage 
which it must, of necessity, place in the hands of a gov- 
ernment. The power to make roads and canals when- 
ever it pleased, and to employ upon them whomsoever 
it pleased, once placed in the hands of a party, would 

16* 



186 INTERNAL IMPROVEMENTS. 

perpetuate it in office forever, in spite of any violation 
of right which it might perpetrate, or any corruption of 
which it might he guilty. There is too much reason to 
fear, that a large portion of the investment in internal 
improvement made by our State authorities will prove an 
almost total loss. 

For these reasons, it seems to me that the safer rule 
would be to leave works of this kind to be executed by 
private corporations. This, however, is a general, and 
not an universal rule. Works may be of such magni- 
tude, or they may be of so great national importance, 
that they must be executed and controlled by the public 
at large. These cases are, however, I apprehend, the 
exceptions. The rule I suppose to be as above stated. 

There are, however, other improvements, of very great 
importance, the superintendence of which belongs, of 
necessity, to a government ; it is that class of improve- 
ments which reduce the expense, and lessen the risk of 
external commerce. Among these, the most important 
are the removal of obstructions from harbors ; the loca- 
tion of buoys and the erection of light-houses ; the ex- 
ecution of accurate surveys ; and the publication of ac- 
curate charts of the whole coast of a country. The 
more perfect these become, the less is the risk of ship- 
wreck, in leaving and approaching a coast ; of course, 
the less is the cost of insurance, and the less the price 
of every thing imported and exported. Hence, a nation, 
offering these advantages, becomes a better market for 
all other nations, and they will the more readily resort to 
her for exchanges. Improvements of this sort are one 
of the most economical forms of national investment ; 
they frequently save, in a single year, the whole cost of 
their erection. The loss of property and life, by ship- 
wreck, on almost every coast, is enormous. The great- 
er part of this loss might probably be saved, by judicious 
expenditure upon improvements on the coast, and proper 
regulations for the government of pilots. 

3. I have said, above, that exchanges will be effected 
by the security or insecurity of the right of property. 
Hence, legislators can do much to promote the prosper- 



TREATMENT OF FOREIGNERS. 187 

ity of a country, by the enactment of wholesome laws, 
by which contracts shall be enforced, wrongs redressed, 
and injuries prevented. And they should be specially 
careful that they are not guilty, in their social character, 
of what they forbid to others in their individual charac- 
ter. They should be scrupulous in the observance of 
individual right, and should remember, that a single in- 
dividual is as important as a nation, when the question 
of justice is concerned. 

And the same principles apply to the treatment of 
foreigners. No foreigner can traffic with another coun- 
try, without placing his property in the power of the cit- 
izens of that country. If his rights be respected, and 
he be assured of the benefit of equal laws, he will invest 
his properly abroad as freely as at home ; and will, with 
confidence, and on the most moderate terms, effect ex- 
changes to as great an extent as he is able. Hence, 
under these circumstances, exchanges will be effected 
to the greatest advantage of both countries, and they 
will naturally flow from other countries to such an one as 
this. And the reverse will be the case, if the rights of 
foreigners are disregarded. Other nations will desire 
their custom, if we do not. Commerce will leave our 
shores, and we shall be left in the well-known condition 
of the dog in the manger. The fable, I believe, informs 
us that he was starved to death. 



188 



CHAPTER SECOND. 

OF EXCHANGE BY MEANS OF A METALLIC CURRENCY 



SECTION I. 

OF THE USE OF A CIRCULATING MEDIUM. 

In the preceding chapter, I have endeavored lo illus- 
trate the general principles of exchange, and the condi- 
tions by which it is regulated. Exchange, however, 
like every other benefit which we enjoy in this life, can 
only be accomplished by labor. But in this, as in ev- 
ery other case, it holds true, that a great advantage is 
gained by increasing the productiveness of labor ; that 
is, by enabling the same individuals, by the same labor, 
to accomplish a greater amount of exchange. And it 
holds true in this, as in other cases, that the result of 
labor is more perfect, just in proportion as the produc- 
tiveness of labor is increased. 

But in order to accomplish this, an intermediate in- 
strument or tool must be used. A man who cannot 
split a log by the direct use of his hands, will find no 
difficulty in splitting it with a beetle and wedges. So, 
also, he who would find it impossible to effect a dozen 
exchanges in a day, if he insisted on exchanging the 
products themselves, will find no difficulty in doing it in 
a few minutes, by means of the instrument which has 
been invented for this purpose, and he will not only thus 
do it in a shorter time, but also on better terms, and 
with much greater exactitude. 

This instrument, of so much importance in exchange, 
is money ; to a consideration of the nature and uses of 
which, we shall devote this and the succeeding chapters. 
The present chapter will be confined to the considera- 



DIFFICULTIES OF EXCHANGE IN KIND. 189 

tion of a metallic currency. We commence with the 
use of a circulating medium. 

In treating of this subject, we shall first consider the 
difficulties vvhieh must necessarily embarrass exchange 
in kind; and, secondly, the manner in which these diffi- 
culties are removed by means of a circulating medium. 

I. The difficulties which attend upon exchange in 
kind. 

By exchange in kind, I mean exchange of commodity 
for commodity, as when a farmer exchanges wheat for 
sugar, or pork for iron, &c. 

1. Suppose a producer to have prepared his product 
for consumption. If he be obliged, to exchange in kind, 
it may be a long time before he finds another person 
who desires the article which he has created. If he be 
obliged to wait long, his product, if perishable, will be 
either destroyed or deteriorated. He must go in search 
of a purchaser ; and if he at length find one, he may 
have consumed, in the search, as much time as the arti- 
cle originally cost. This must be added to the cost of 
the article, or else he will be a loser. But, by this 
additional cost, the product is no better ; it is only dear- 
er. This must, of course, decrease the demand ; and 
hence, by all this additional cost, both parties are poorer. 

2. But it is to be remembered, that the producer not 
only wants to part with his product, but also to part with 
it for some definite object of desire. He who has rais- 
ed wheat, does not wish simply to part with his wheat, 
but also to receive in exchange for it, tea, or coffee, or 
iron, or salt, or clothing. He must, therefore, in order 
to effect the exchange which he desires, not only find 
some one who wishes for wheat, but also some one who 
is able to give him, in return, the precise product he 
desires. If he desire clothing in return, it will not be 
sufficient to find some one who offers him bread, or 
shoes, or butcher's meat. This, also, increases the dif- 
ficulty of exchange, and, of course, the labor and the 
cost necessary to effect it. 

3. But this is not all. Men who wish to exchange, 
do not always wish to exchange in equal amounts. A 



190 DIFFICULTIES OF EXCHANGE IN KIND. 

grazier who brings a fatted ox to market, may find per* 
sons enough who want a few pounds of beef, but very 
few who want a whole ox. The grazier cannot divide 
his ox, and give a part of it for a few pounds of coffee 
or tea ; nor, probably, does he require one fourth of the 
value of the ox, in any article which can be purchased 
in the town where it may be sold. He wishes to obtain, 
by the sale of the ox, additional provender for the sup- 
port of his remaining herd. This he cannot, perhaps, 
procure, except in the country ; or if he could procure 
it, the merchant who owns the provender, would not 
want a whole ox for butcher's meat. Thus, exchanges 
would be arrested ; or must be made very rarely, and at 
great cost, and under every possible disadvantage. 

4. Such are the difficulties which attend upon the 
exchange of material products. But it will be manifest, 
at once, that material products give rise to but a small 
part of the exchanges which are, by necessity, made 
among men. One great article to be exchanged is labor. 
This every man produces, and must produce, by the 
law of his nature ; and this, every man is able to offer 
in exchange for the objects of desire. Now, were ex- 
change only in kind, a man who had nothing but labor 
or skill to offer, would not be able to labor for those 
who desired his labor and who would give him the great- 
est wages for it ; but he must labor for those who were 
willing to give, in ever so small quantity, the articles 
which he needed for his support. The laborer in an 
iron-foundry would be obliged to take his pay in iron. 
But, as he could not exchange his iron with the baker, 
the butcher, or the clothier, he must go and work for 
these producers, for any compensation by which he 
might obtain for himself the necessaries of life. The 
workman of the baker must take his pay in bread. But 
he would want only a small portion of bread for himself, 
and he must spend his time in exchanging it for what- 
ever else he needed. If he could not thus procure tea, 
coffee, clothing, and other necessaries, he must leave 
his occupation, and work for those who wished to ex- 
change them for his labor. The physician must take his 



UTILITY OF A CIRCULATING MEDIUM. 191 

fee in iron, or bread, or butcher's meat ; and if any of 
his patients produced what he did not want, he must ei- 
ther attend them gratuitously, or they must die without 
assistance. Besides this, there are many products in- 
capable of division. If a hundred men engaged in 
building a ship or a house, how would they take their, 
pay in kind, without taking the ship in pieces, and thus 
rendering their work wholly useless ? 

5. Hence, were exchange only in kind, there would 
be no division of labor, except in its most imperfect 
form. No man could perfect himself in any one art ; 
because, by the exercise of that alone, he could not 
possibly procure the means of sustenance. I have al- 
ready shown, how impossible it would be for him to do 
this by the practice of any one of the ordinary mechan- 
ical trades. How much more, when these trades are 
minutely subdivided. I have elsewhere stated the ad- 
vantages of this subdivision. But how could this be 
effected, if exchange were made only in kind ? Sup- 
pose a man employs his time in the single process of 
heading pins, or in forming the rivets for the handles of 
pen-knives ; how could he subsist by exchange in kind ? 
Who would give him what he needed for subsistence, 
for his pin-heads, or for his knife-handle rivets ? Hence, 
division of labor, so essential to the productiveness of 
human industry, to the progress of society, and to the 
use of natural agents, could exist only in its most ele- 
mentary forms, were exchange limited in the manner we 
have supposed. 

And, if it be said that this inconvenience could be 
avoided by establishments for barter, it will at once ap- 
pear that these could remedy it only in part. They 
could assist in the exchange of nothing but material prod- 
ucts, and of those which were not rapidly perishable. 
They could present no relief for exchanges of labor. 
Hence, they would do almost nothing to facilitate divis- 
ion of labor, and could carry forward the progress of so- 
ciety in no respect beyond its most rude beginnings. 

From such causes as these, arises the necessity of a 
circulating medium ; and it will be easily seen, in what 



192 UTILITY OF A CIRCULATING MEDIUM. 

manner, by means of a circulating medium, they are 
remedied. 

1. Suppose that the producer can always exchange 
his product, not for the article which he immediately 
wants, but for some other article which is universally 
wanted, and wanted at all times, and in all quantities. 
As soon as the producer has, by exchange, possessed 
himself of this commodity, he may then, on account of 
its universal desirableness, easily procure, by another 
exchange, whatever he may need. In this manner, by 
means of two exchanges made at the same instant, the 
labor of days or of weeks may be accomplished. Thus, 
if salt were this commodity, and every one wanted salt 
in all quantities, at all times, and at a fixed value ; by 
exchanging every thing for salt, and then exchanging salt 
for whatever we might desire, the labor of exchanges 
would be vastly diminished. 

2. This convenience, however, will be much increas- 
ed, if the article of universal desire be small in bulk ; 
because, in this case, much of the labor of transporta- 
tion will be avoided. Were the lace-maker obliged to 
exchange his lace for salt, he would be obliged to fur- 
nish himself with a cart, in which to receive his pay- 
ment. And thus, in general, instead of a purse, in 
which to carry our money, we should require, for this 
purpose, the use of a wagon and horses. 

3. If this circulating medium be also minutely divisi- 
ble, it will possess still greater conveniences. The 
producer may then part with all, or with a part of his 
product ; and he can procure, with a circulating me- 
dium, as small a portion of that which he wishes in ex- 
change, as he may choose. The farmer, instead of 
exchanging one part of his wheat for tea, another part 
for coffee, and another part for clothing ; or else, ex- 
changing it all for tea, and then endeavoring to find cus- 
tomers for his tea, may exchange it all for the circulat- 
ing medium, procure as much of each as he pleases, or, 
if he choose, make no further exchange whatever. 

4. The case is still stronger, when labor is one of 
the articles to be exchanged. The laborer will now no 



UTILITY OF A CIRCULATING MEDIUM. 193 

longer be obliged to labor at any price, for him who is 
able to give him in exchange what he immediately 
wants ; but he may labor for any one who will give him, 
in return, this object of general desire. Hence, he is 
now at liberty to labor for him who will give him the 
best wages ; that is, where his industry and skill will be 
employed most advantageously to himself. With this 
he can procure whatever he wants, in such portions as 
he may desire. 

5. The practicability of the division of labor now 
becomes immediately apparent. If the laborer be paid 
in the article of universal desire, it makes no difference 
whether the person who produces what he wants, needs 
or does not need, his particular product. He wants the 
object of universal desire, and this is enough ; for, by 
this, the laborer can effect exchanges with him or with 
any one else. If he can procure this circulating me- 
dium by means of pin-heads, or knife-handle rivets, this is 
all that he wants. He is now as independent as though 
he produced that which every one wants ; since, by 
means of what he produces, he can procure that which 
every one wants. Thus, we see, that every man is, in 
this manner, able to devote himself to that in which his 
skill will be most productive to himself. And all men 
thus making the first exchange in this object of universal 
desire, all are equally independent ; and all are able, in 
the most successful manner, to avail themselves of the 
fruits of their own industry. 

Now, whatever it is that performs the office of thus 
facilitating exchanges, is called a circulating medium. 
So great has been the necessity of some such instru- 
ment, that even the rudest nations have always been 
found adopting some such contrivance with advantage. 

Thus, the natives of the African coast were formerly 
n the habit of using, as money, small white sea-shells, 
denominated cowries. 

In pastoral nations, cattle were frequently used as a 
circulating medium. Thus we are told, by Homer, that 
the armor of Diomede cost nine oxen. Sheep, proba- 
bly, were also used for the same purpose. The ordi- 
17 



194 UTILITY OF A CIRCULATING MEDIUM. 

nary mode, among such nations, of estimating the wealth 
of an individual, was by the number oi" his flocks and 
herds. Hence, probably, arose the custom, among the 
Greeks and Romans, of stamping their earliest coin with 
the figure of an ox or a sheep. Hence, also, the Latin 
word pecunia, money, is supposed to be derived from 
jkcus, a sheep. 

From reasons which will easily suggest themselves, 
all other substances soon gave place to the metals, as a 
circulating medium. Different metals were, however, 
used at first by different nations. The first instance on 
record, of the use of metals, as a medium of exchange, 
is found in Genesis 23 : 16. "And Abraham heark- 
ened unto Ephron. And Abraham weighed to Ephron 
the silver which he had named, in the audience of the 
sons of Heth, four hundred shekels of silver, current 
money with the merchant." We see that at this time 
the money was weighed ; that is, was not paid by tale. 
I presume that the metals were used as a circulating 
medium for a long period before they were fashioned 
into coin. At a much later period, the baser metals 
were used as money by the Greeks and Romans. Thus 
the Lacedemonians, under Lycurgus, established iron 
as the circulating medium. The Romans used copper 
or brass in the early ages of their history. Hence, as 
signifies, in Latin, both brass and money. These, how- 
ever, in all places, have long since given place to gold 
and silver, which are hence denominated the precious 
metals. These are now used for the purposes of 
money, throughout the known world, except among the 
rudest and most barbarous tribes. Copper is used only 
in the payment of sums less in value than the lowest 
denomination of silver coin. In some countries, both 
gold and silver are made a legal tender in payment 
of debts ; in other countries, only one of these metals is 
used. In this country, both are thus established by 
law. In Great Britain, gold is the only legal tender for 
all sums greater than twenty shillings, and silver for all 
sums of less amount. Copper is used only in payment 
of sums less than sixpence. 



QUALITIES OF A CIRCULATING MEDIUM. 195 



SECTION II. 

OF THE QUALITIES NECESSARY TO THAT WHICH 
CONSTITUTES THE CIRCULATING MEDIUM. 

In order to render any substance available as a circu- 
lating medium, the essential quality required is, that it 
be universally desired as such. Its object is to facili- 
tate exchanges, but it can accomplish this object, only 
by means of the willingness of the whole community to 
exchange for it every thing which they are willing to 
part with. If one individual of a community prefer one 
substance, and another individual another, exchanges 
will be embarrassed, by unnecessary multiplication, and 
by the useless consumption of time. And if, on the 
other hand, any substance be thus universally desired ; 
on account of the great facilities which it offers, and the 
great saving of labor which it effects, it will be immedi- 
ately used for this purpose. And it will be so used, 
without any agency of government ; and even although 
a government did not exist ; just as a man will use any 
other instrument for increasing the productiveness of his 
labor as soon as he can procure it ; simply for the rea- 
son that it is for his advantage. 

If the exchanges of a country were wholly internal, it 
would be sufficient that such a circulating medium were 
universally acceptable in that country alone. But, inas- 
much as every nation has important and extensive ex- 
changes with other nations, it is an additional advantage 
to have the same substance used as a circulating medium 
by all. We have already seen, that that exchange is 
the most pro6tab!e for a country, in which it exports 
what is relatively most abundant at home, and imports 
that which is relatively most wanted at home ; and im- 
ports it from that country in which, what it exports is 
most wanted, and what it imports is most abundant. 
Now, it is evident, that the circulating medium may be 
accumulated in any country, so that it shall be relatively v. 
lower in price than other commodities. Thus, the pre- 



196 QUALITIES OF A CIRCULATING MEDIUM. 

cious metals may be so abundant in this country, that a 
merchant can procure more iron in Russia by sending a 
given amount of silver, than by sending the flour which 
would here be equal in value to the silver. It is, there- 
fore, for his advantage to send the silver, and it is 
equally for the advantage of his country. And, for the 
same reason, if in this country there be a relative scar- 
city, it will be for the advantage of other nations, as 
well as for our advantage, that they should send silver in 
exchange for our products. In this manner, exchanges 
are made, of that which is least wanted by both parties, 
for that which is most wanted by both. This enables 
both parties to supply themselves at the lowest rates. ♦ 

Besides, it is very desirable that the value of the 
circulating medium, be as little as possible liable to fluc- 
tuation. Now if the same substances be used in all the 
civilized world, this fluctuation, if not absolutely pre- 
vented, will be so restricted, as to produce the least 
possible amount of evil. When exchanges between 
countries are frequent and numerous, and the prices of 
all commodities are universally known by the merchants 
of both, as specie may be sent abroad with very little 
cost of transportation, a very slight advance in its rela- 
tive value will cause it to flow in from other countries, 
and a very slight surplus will cause it to flow to other 
countries, until the common equilibrium be restored. In 
this, we see in what manner the universal employment 
of the same substances, by all nations holding intercourse 
with each other, will be an advantage to all ; inasmuch 
as it will prevent any great fluctuation in their relative 
value in any particular country. 

While, however, it is the fact, that any thing which is 
thus universally acceptable will be used as money, there 
are various circumstances on which this acceptableness 
depends. Some of these are the following : 

1. Its cost, or, in other words, the amount of labor 
necessary to its production, must be as invariable as pos- 
sible. Hence, it could not be a vegetable product, be- 
cause the variations in the productiveness of labor thus 
employed are very great. An abundant harvest pro- 



QUALITIES OF A CIRCULATING MEDIUM. 197 

duces a rapid fall, and a famine produces a rapid rise, in 
the price of wheat. On this account, a metal is prefer- 
able ; because, here the amount produced is directly and 
immediately dependent on the labor employed in produc- 
ing it, and is less liable to be influenced by disturbing 
forces. 

2. It should be an article of high price ; that is, with- 
in a small bulk, it should concentrate a large amount of 
value, or represent a large amount of labor. This is, 
of course, a great advantage, by saving the labor of 
transportation. Every one sees that the commerce of 
the world, at its present state, must instantly cease, if 
we were obliged to exchange our gold and silver for the 
iron money of Lycurgus. 

Yet, to this remark there is a limit. As a substance 
may not be of a price sufficiently high, so it may also be 
of a price too high for the purposes of money. Pre- 
cious stones are minerals, and they cost all the price at 
which they are sold ; but they are too dear to be used 
for this purpose ; that is, though they might answer for 
the exchange of great values, yet, for all common ex- 
changes, they would be utterly unsuitable, because they 
would be of so small bulk, as to be very easily lost. 

3. The substance must be capable of division, with- 
out loss of value. As it is desirable that provision be 
made for facilitating all sorts of exchanges, the substance 
used as money, should be capable of division into such 
portions as may suit the convenience of every one, with- 
out itself suffering, by this division, any diminution of 
value. On this account, also, the precious stones would 
be unsuitable for this purpose, because their value is not 
proportional to their size. A large diamond is worth 
several times its weight of small diamonds. If it be 
divided, its value is very greatly diminished ; and hav- 
ing been once divided, its value can never be restored. 
On the contrary, a lump of gold may be divided into one 
hundred pieces, and the value of all the pieces together, 
is equal to the original value of the whole. They may 
if occasion require, be again united into one lump, and 
the value of the whole is the same as before. 

17* 



198 QUALITIES OF A CIRCULATING MEDIUM. 

4. The subslance should be of such a nature, that it 
can be easily verified ; that is, it should be susceptible 
of such preparation, that every one can readily assure 
himself of its purity and weight ; that is, of its value. 
Unless this can be done, at every exchange, every one 
must examine and try every piece by itself. This would 
consume much time, would require the possession of 
great skill in every individual, and would, by its frequent 
repetition, soon wear away the substance itself. Hence, 
it is of advantage that the metals used for money should 
be peculiar in their weight and color, and that their ap- 
pearance should attract attention, so that their peculiari- 
ties may be easily learned and distinguished. The bril- 
liant lustre of silver and gold, therefore, adds very much 
to their fitness for coin. Their weight, also, presents a 
ready means for the detection of adulteration. Platina, 
which is used in Russia for the purpose of money, has 
the advantage of both of them in weight ; but it has no 
lustre, and, in appearance, it very much resembles the 
baser metals. This will be an objection to its universal 
acceptableness. 

5. It should be as little as possible liable to decay. 
Were it easily destructible, great, losses would constantly 
occur ; as the loss must fall upon the individual in whose 
hands it happened at the time to be. And besides, it 
would be from this cause liable to so great fluctuation in 
value, that it could never be used as a circulating medi- 
um. Were fish or wheat the circulating medium, since 
both are liable to rapid decay, a change of weather might 
frequently ruin a man. No one would exchange, at such 
hazards, for the circulating medium, and all exchange 
would be made in kind. Could the circulating medium 
always bear the same relative price to other commodities. 
it would probably be advantageous. But as this is im- 
possible, it is manifest, that that commodity which is 
liable to the least fluctuation, is, by this circumstance, 
the best adapted to this purpose. 

. 6. As we sometimes desire to make small and some- 
times large exchanges ; and, as the substance best adapt- 
ed to the one is not always best adapted to the other, 



QUALITIES OF A CIRCULATING MEDIUM. 199 

there is an advantage in employing two metals for this 
purpose. For this reason, both silver and gold are com- 
monly employed in most civilized countries. For ex- 
changes of less value than the smallest silver coin, copper 
is also generally used. And, if silver should ever be- 
come so abundant and cheap as to be too bulky to be 
used for effecting small exchanges, it would take the 
place of copper, and its place would be supplied by 
gold. Should gold become as abundant as silver, it 
would take the place of silver and some dearer metal, as 
platina would be used in its stead. 

Inasmuch as gold and silver possess all the essential 
qualities which are required in a circulating medium ; 
and as the condition of man so manifestly points to the 
necessity of some such instrument, it is not remarkable 
that they have so long and so universally been adopted 
for this purpose. But it is always to be remembered, 
that we use them as a circulating medium, because we 
want a circulating medium, and because they accomplish 
the purpose. We do not use them as a circulating me- 
dium, because we see a stamp upon them, nor because 
government has made them a legal tender ; but because 
we know that they represent a given amount of value, 
and we therefore know, that we can exchange them for 
the same amount of value, whenever we please. If a 
bushel of wheat sell for a dollar, we know that it costs 
as much labor to produce a dollar at the mine and bring 
it to us, as to produce a bushel of wheat and bring it to 
us. Hence, we know that, until some new and vastly 
more productive mines are discovered, this dollar cannot 
be produced for less labor, nor represent a less amount 
of value. And, as every body wants a dollar, and no 
one can furnish it at a less cost, we know that it will 
bring, in exchange, the same as we have given for it. 

We remarked, when speaking of exchangeable value, 
that the demand for any product, and, of course, its 
exchangeable value, was affected by the number of de- 
sires it would gratify. The greater the number of de- 
sires which it will gratify, the greater the number of 
persons who will want it ; hence, they will overbid each 



200 OF THE FUNCTIONS OF MONET. 

other ; and, unless there be some improved, that is, 
cheaper method of producing it, its exchangeable value 
will rise. This principle applies to whatever is used as 
money. The precious metals are used for ornament, for 
domestic utensils, and for coin. If the use of them for 
one of these purposes should be discontinued, the de- 
mand would be less ; and, as they are not liable to de- 
cay, their relative price would fall. 

Hence it is, that the amount of plate and utensils 
formed of the precious metals, in a country, is no crite- 
rion of its wealth, but frequently an indication of the 
reverse. Should commerce be unproductive, and ex- 
changes diminish, and our intercourse with other nations 
be cut off, and we be reduced to the condition of Europe 
in the dark ages, there would be but little need of the 
precious metals as an instrument of exchange, and their 
price would fall. Hence they would be melted down by 
the rich, into plate. And, on the other hand, when they 
have been used for plate, and the demand for them, and 
their consequent price, have from any cause subsequently 
increased, the temptation to use them productively, is 
too great to allow them to be employed in this manner ; 
and the plate is melted into coin, and its place supplied 
with porcelain, or plated ware, or glass, or any other 
material of equal beauty, but of inferior costliness. 



SECTION III. 

OF THE FUNCTIONS OF MONEY. 

Let us now suppose metals to have been selected by 
the whole community as the circulating medium, and that 
they have been so divided and verified as to be fitted to 
accomplish this purpose. We shall proceed to consider 
some of the functions which these metals would discharge. 

Money is the instrument for facilitating exchanges 
This, when considered as money, is its only office. By 



OF THE FUNCTIONS OF MONEY. 201 

accomplishing this purpose in the least time, and at the 
least expense of labor, and transportation, and wear, it 
reduces the cost of every product, and thus adds im- 
mensely to the productiveness of human industry. 

The principles on which it accomplishes this result, 
have been already alluded to. They are briefly as fol- 
lows : 

1. The cost or price of the money employed in every 
exchange, is equal to the cost or price of the article 
which is exchanged for it. If a barrel of flour in Lima 
be exchanged for ten ounces of silver, the cost of pro- 
ducing the flour, and of transporting it to Lima, is equal 
to the cost of producing the silver and transporting it to 
the same place. If a barrel of flour in New York, be 
exchanged for seven ounces of silver, the cost and 
transportation of the one at the place of exchange, is 
equal to that of the other. If the flour merchant wishes 
for a thousand ounces of silver, he can procure it more 
cheaply by producing flour than he can by going to the 
mines of Mexico, and working it out from the ore. 
And, if the miner wishes for flour, he can procure it 
more cheaply by working in the mine, than by attempt-' 
ing to raise wheat and manufacture flour on the moun- 
tains of Potosi. 

That this is so, is evident from the fact, that if the 
cost of the precious metals change, their exchangeable 
value varies, like that of any other product. Thus, if 
new and richer mines are opened, so that the cost of 
producing the precious metals is reduced, or, in other 
words, so that mining labor is more productive, the price 
of the precious metals falls. In such a case, we receive 
more silver for a day's work, for a bushel of wheat, for 
a pound of wool, or for any other product. Money is 
thus rendered cheaper, on the same principle that when 
a wheat harvest is abundant, we receive a larger amount 
of wheat for a day's work, or for a pound of wool, than 
at other times. This is exemplified, in the great change 
of prices which occurred throughout the world after the 
discovery of the mines of South America. And, on 
the other hand, when the price of producing the precious 



202 OF THE FUNCTIONS OF MONEY. 

metals is increased, their exchangeable value rises. This 
has been the case, for some time past, in consequence 
of the civil wars of South America. Hence, there has 
been for some time past, a gradual rise in the price of 
the precious metals ; that is, the price of other things 
has fallen ; or, in general, if the cost of the production 
of the precious metals diminishes, while that of the pro- 
duction of wheat remains the same, we shall receive 
more silver in exchange for a bushel of wheat. If the 
cost of producing an ounce of silver is increased while 
that of producing a bushel of wheat remains the same, 
we shall receive less silver, in exchange for a bushel of 
wheat. That is, in exchanging products for the precious 
metals, as for any thing else, we exchange on the prin- 
ciple of labor for labor. 

Besides, the price of the precious metals, like that of 
any other commodity, is influenced, in short periods, by 
the fluctuations of supply and demand. There is, in 
any country, the course of whose industry is not distort- 
ed by legislation, a supply of money, equal to the ordi- 
nary wants of the community, for the purposes of ex- 
change. The price of both articles, is, in such a case, 
based upon the cost of the production of specie, com- 
pared with the cost of the production of the several ar- 
ticles for which it is exchanged. But, suppose that 
while this amount of specie remains the same, there 
should happen a year of universal productiveness in all 
the departments of agricultural, manufacturing, and com- 
mercial industry. In this case, the number of exchang- 
es, and the amounts exchanged, would be proportionally 
increased. The instrument with which exchanges were 
to be made, would be relatively scarce ; the demand for 
it would rise ; and there would be competition among 
the bidders for it. Hence, its exchangeable value would 
rise ; that is, we should give more wool, and wheat, and 
cotton, for an ounce of silver ; every thing would be 
cheap ; or, in other words, for an ounce of silver, we 
should procure a larger amount of other products ; as 
we always do, in a season of universal productiveness. 
And, on the contrary, if, while the ordinary amount of 



OF THE FUNCTIONS OF MONEY. 203 

specie remained in the country, there occurred a very 
unproductive season, the number of exchanges would 
proportionally diminish, and there would be less demand 
for the instrument of exchange. There would arise a 
competition among the sellers, and the relative price of 
money would fall ; we should give more money for 
every other article of necessity ; that is, every thing 
would be dear, as every one knows it is, in a season 
of scarcity. 

We see, then, that the exchangeable value of money, 
is not derived from its shape or color, from the stamp 
of the mint, or from the enactments of the government ; 
but that, like every thing else, it is based upon the cost 
of its production, varying, slightly, and for short periods, 
like every thing else, with the accidental fluctuations of 
supply and demand. And hence, the reason why a man 
exchanges a bushel of wheat for two ounces of silver, 
and a yard of broadcloth for six ounces, is, that it costs 
as much labor and capital to produce the one at the 
place of exchange, as the other, and that no one can 
produce the given amount of silver, by mining, or in 
any other way, without expending the same amount of 
labor and capital, that the flour merchant or the manu- 
facturer has expended in the creation of his products. 

As, then, every man, when he exchanges his products 
for the precious metals, knows that he receives a com- 
modity of as much cost ; that is, which represents the 
same amount of labor and capital, as that for which he 
exchanges it; and, as he knows that every one wants 
this commodity, that is, he can procure with it any thing 
which anyone else has to exchange; and, as no 'one 
who wants it, can procure it on any better terms from 
any one else than from himself, every one is willing to 
exchange for money, and would rather exchange for it 
than for any thing else. As this feeling is universal, 
every one acts upon the same principle ; and hence, all 
exchanges are either made in money, or else are regu- 
lated by it. 

II. But the question will naturally arise, if the value 
of the silver be equal to that of all the amounts exchang- 



204 OF THE FUNCTIONS OF MONEY. 

ed for it, must not the value of the precious metals in 
the community, be equal to the value of all the other 
commodities ? 

We answer, this would be the case, if all exchanges 
were actually made in money, and actually made at the 
same instant. But the contrary is the fact. 

No man exchanges all his products at once, but ex- 
changes them in successive portions. If two men pos- 
sess one thousand dollars' worth of commodities ; for 
instance, if A and B live in different towns, and if A 
have wool and B have wheat, and they exchange the 
whole at once, and use money as the instrument, they 
must each possess also one thousand dollars with which 
to make the exchange ; that is, A must give B one 
thousand dollars for his wool, and vice versa. But, if 
they exchange in portions of the value of ten dollars, at 
one hundred successive times, ten dollars in the posses- 
sion of each, and the same identical ten dollars, would 
accomplish the whole object. Now, as it is evident, that 
on any particular day, only a very small part of the 
whole amount of values in the possession of the commu- 
nity, is exchanged, it is evident that only so much of the 
instrument of exchange is necessary, as will accomplish 
the exchanges which the convenience of the community 
requires. No one supposes, because there is a million 
tons of merchandise in a city, that there must have been 
vehicles capable of carrying a million tons at once in or- 
der to bring it there. A locomotive, carrying fifty tons 
at once, if it went and returned frequently, would speed- 
ily accomplish the whole work. 

2. But this is not all. A large amount of exchanges 
is constantly made in kind. A buys wool of B, and B 
buys cloth of A. They both estimate the value of 
their product in money, because, as this is the usual 
medium of exchange, and that by which they are oblig- 
ed to estimate cost, this method of estimation is most 
convenient. Each charges the other with all that he 
purchases, at its value in silver. At the close of the 
year, they adjust their accounts with each other. If A 
and B have both received of each other the same amount 



OF THE FUNCTIONS OF MONEY. 205 

of value estimated in silver, the one account balances 
the other ; and thus, no money at all is required. If 
one have received more than the other, he pays merely 
the difference, either in silver, or else in his own prod- 
uct, at the option of his creditor. In this manner, a 
large proportion of the exchanges actually made, is con- 
ducted. In this manner, book-keeping tends greatly to 
diminish the amount of the circulating medium necessa- 
ry for the exchanges of a community. 

3. We see that this is still more emphatically the 
case, in respect to all the exchanges which take place 
between different districts, and different nations. Inas- 
much as no society can gain possession of the objects of 
desire, except by its own labor, it must pay for what it 
receives in the product of the labor of others, with what 
it sends away, in the product of its own labor ; that is 
to say, the exports of any country must be substantially 
equal to its imports. If, then, the transactions between 
two nations should be precisely equal, there would be no 
need of the transmission of any money at all between 
them. If A send ten thousand dollars' worth of cotton 
to Liverpool, and import ten thousand dollars' worth of 
calicos from Manchester ; he authorizes the manufac- 
turer in Manchester to receive in payment, the ten thou- 
sand dollars which are due to him from the merchant in 
Liverpool ; and, thus, the whole matter is adjusted. If 
we receive from England, values to a larger amount than 
she wishes to receive in our own productions, we send 
some of our productions to a third country, and thus pro- 
cure for England, what she wishes from the third coun- 
try, in sufficient quantity to pay the residue. If we can 
get her products, in this manner, cheaper than we can 
make them ourselves, it is for our interest to do so. If 
they thus come to us at a cost greater than that for which 
we could produce them ourselves, we shall relinquish the 
trade, and begin to manufacture them. In either case, 
there is no necessity for the use of money. And hence, 
in general, the only reason why money is sent from one 
country to another, in the transactions of commerce, is 
the same reason as that for which tea, or coffee, or 
18 



206 OF THE FUNCTIONS OF MONEY. 

cotton, or flour, is sent ; that is, because it is so much 
cheaper in the country from which it is sent, than in 
that to which it is exported, that a larger value can be 
procured for it, than for the same value of any other 
commodity. In this case, it is for the advantage of both 
countries that it should be so exchanged. 

The amount of the circulating medium, in any one 
country, and, of course, in all countries, must, therefore, 
be very small, in proportion to the whole amount of the 
capital of a country. The actual proportion, perhaps, 
cannot be estimated with accuracy. In Great Britain, 
writers on this subject have greatly varied. Some have 
estimated it at the 50th, and others, at the 127th part 
of the whole capital. The latter is, probably, by far 
the nearer to the truth. 

III. We see, then, that, under given circumstances, 
in any country, a given amount of specie will be requir- 
ed to effect its exchanges ; and that, that amount will 
depend upon the relative value of the precious metals 
with other things, and upon the number and the facili- 
ties of exchange. These latter circumstances remain- 
ing the same, the same value in specie will always be 
required, and no more. If specie, equal in value to ten 
million bushels of wheat be required, no more in value 
can be used. If the amount be increased, its value 
will fall. If the amount be diminished, its value will 
rise. And this rise and fall will equally take place, 
whether the relative variation arise from a change in the 
cost of specie or of other products. Now, it is easy to 
see that these variations, if left alone, will regulate 
themselves. 

We have seen, already, that the relative value of 
specie and of other products may vary. Let us sup- 
pose, in the first instance, that production, in any one 
year, is greatly increased, so that money in any country 
is dear, or, which is the same thing, that other products 
are cheap. Let us, for the sake of illustration, suppose, 
that in New York, ftour is sold at. four dollars per barrel 
If, now, a merchant wished to import a cargo of wine 
from Bordeaux, since four dollars and a barrel of flour 



OF THE FUNCTIONS OF MONEY. 207 

here, are at the same price, he can as cheaply send out 
the one as the other, with which to pay for his wine. 
But suppose that a barrel of flour will purchase more 
wine in Bordeaux, than four dollars or four ounces of 
silver. He will then send flour, instead of silver ; and, 
as all other men in their senses will do the same, of 
course no specie will leave the country. On the contra- 
ry, a merchant in London, wishing to purchase cotton in 
New York, will ascertain the relative value of specie, 
and that of calico, or hardware, or iron ; and will send 
specie in payment for his cotton, whenever he finds that, 
by a given value of this export, he can import a greater 
amount of cotton, than by the same value of any other. 
Other merchants in other place.., will do the same, until 
the requisite amount of specie has flowed in, and it has 
become as abundant here, as in other countries. Thus, 
when specie is high in any country, it goes out nowhere, 
and comes in from everywhere. 

On the contrary : suppose an unproductive season to 
arise, and the relative quantity of specie in this country, 
to exceed the average in other countries. In this coun- 
try, therefore, specie would be cheap ; that is, every 
thing else would be dear. The merchant, who wished 
to import a cargo of iron, would compare the prices of 
flour and of money. If flour was at fifteen dollars the 
barrel, that is, if he could purchase, at the same price, 
a barrel of flour and fifteen dollars, he would easily as- 
certain by which, in Russia, he could procure the great- 
est amount of iron. If fifteen dollars would procure the 
most iron, he would send the dollars instead of the flour. 
This would be an advantage to him and to the country, 
because, by this mode of exchange, he receives the 
largest amount in return ; and he procures it by means 
of that which is relatively the most abundant ; that is, 
which is manifestly the least needed. And a merchant 
in Liverpool, who knows the prices of our products, 
observing that he can exchange more profitably with us 
by receiving his payment in specie, at the relative prices 
which specie and products sustain to each other, will re- 
ceive his payments in specie. Thus, by the sending 



208 OF THE FUNCTIONS OF MONET. 

abroad of our specie, which we do not so much need, 
we shall be supplied with other products which we more 
need : and hence, the relative value of specie to other 
products, will be again brought to an equilibrium. In 
other words, when specie is cheap in any country, it 
comes in from nowhere, and goes out everywhere. 
Thus, among countries between which there is frequent 
intercourse, and a free circulation of mercantile infor- 
mation, the price of the precious metals can never, for 
long periods, vary much from the medium rate, or, 
the rate which is fixed by nature, in the cost of their 
production. Hence we see, that a provision is made, 
founded on the self-interest of man, by which any great 
fluctuation in the exchangeable value of the metals used 
as a circulating medium, is prevented.* It is evident 
that the same consequences must ensue, from what cause 
soever the rise of prices may have taken place. Sup- 
pose that instead of a diminution of productions, there 
should occur an increase of the circulating medium, as, 
for instance, by very large issues of bank paper. The 
proportion between the circulating medium and the prod- 
ucts to be exchanged would be disturbed. Money would 
be plenty, and prices would rise. They might easily rise 
so high that products could not be exported as well as 
money. Specie would then be exported, and the bank 
notes would be recalled. Thus large issues and high 
prices, create, of necessity, mercantile distress and stag- 
nation of business. 

IV. Hence, we also see what is a real scarcity, and 
what an abundance of money ; if, by the term money, 
we understand merely a metallic circulating medium 

* While, however, this is the natural cause for the exportation of 
specie, other causes, which may be termed accidental, frequently oc- 
cur. Where one country is largely indebted to another country, and 
its payments fall due at a time when the supply of its own products is 
insufficient to meet its indebtedness, or when the foreign market is 
glutted with those products; specially if there be any doubt of its 
ultimate solvency ; then, in order to meet its engagements in time, it 
is frequently obliged to transmit to its creditor specie funds to make 
up the deficiency. This is one of the results of the abuse of credit, 
and is always attended with great financial embarrassment. 



OF THE FUNCTIONS OF MONEY. 209 

Money, we have said, is the instrument by which we 
facilitate exchanges. Now, if we bear this in mind, it 
is easy to see what is a plenty and what a scarcity of 
this instrument. A power loom is an instrument for fa- 
cilitating the operation of transforming yarn into cloth 
Power looms are too plentiful, when there are too many 
to perform the work that is required to be done ; in this 
case, we can buy them cheap ; that is, we have to give 
for them a less amount of cotton cloth, or of wool, or 
of silver. Power looms are scarce, when there are not 
enough of them to perform the operations which are re- 
quired ; in this case, we find it difficult to purchase 
them ; they are dear ; that is, we are obliged to give for 
them more than the ordinary amount of cotton, or of 
wool, or of silver. The case is the same with vehicles 
for transportation, or with any other instruments. 

Now money is just such an instrument. It is requir- 
ed, to facilitate exchanges. To accomplish a given 
amount of exchange, a certain value in money is requir- 
ed, and, in ordinary times, this value always exists. 
And, the exchanges remaining the same, we cannot em- 
ploy for this purpose more than this amount of value. 
If a quantity equal to one thousand ounces of silver, or 
of one thousand bushels of wheat, be required to per- 
form the exchanges of a certain community, we cannot 
employ more than this amount of value. If we increase 
the quantity, we shall only decrease the value propor- 
tionally. If such a country be insulated from other 
countries, and we introduce into its circulation one thou- 
sand additional ounces of silver, equal to one thousand 
additional bushels of wheat, the value of the whole two 
thousand will be just equal to that of the one thousand 
ounces before ; that is, the value will not alter. If, on 
the other hand, from such a country thus insulated, we 
remove half the circulating medium, the remaining half 
will accomplish the purpose of the whole ; that is, it 
will double in value. This is evident, because there are 
neither more nor less exchanges to be' made than before, 
and a variation in the instrument does not vary the 
amount of the work which the necessities of the com- 
18* 



210 OF THE FUNCTIONS OF MONEY. 

munity require to be done. If there be a given amount 
of yarn to be woven by twenty looms, the quantity will 
not be increased, by employing forty looms. And, if 
we employ forty, we must work all of them but half the 
time ; that is, each one will be of half its original value. 
If the work be doubled, we must work them by day and 
by night ; that is, each one will be worth twice as much 
as before. But, manifestly, the quantity of work to be 
done being given, it can never be affected by varying 
the quantity of the instruments by which it is accom- 
plished. 

Now, suppose the exchanges, in a given community, 
be equal to fifty millions annually, and that there are re- 
quired, to effect these exchanges, one million ounces of 
silver, and that this quantity of silver actually exists in 
its possession. Under these circumstances, there will 
be neither a plenty nor a scarcity of money, and it will 
be neither exported nor imported. But suppose, that, 
owing to a very productive harvest, or some rapid im- 
provement in the productiveness of human labor, the 
amount of products to be exchanged arises to seventy- 
five millions. Here will arise a scarcity of money ; 
there will be more exchanges than can be accomplished 
by the instrument employed for effecting them. The 
price of money will rise ; in other words, the price of 
other commodities will fall, and every thing will be 
cheap ; that is, though you cannot purchase more wool, 
or butcher's meat, or cotton, with a barrel of flour, than 
you could last year, you can purchase more wool, or 
meat, or cotton, with the money which a barrel of flour 
cost last year. The same result will take place, if, while 
production continues as active, one half of the specie 
for any purpose, as the carrying on of a foreign war, 
were sent out of the country. In this case, as in the 
other, the price of money will rise ; that is, money will 
be dear, and every thing else will be cheap. 

But it is easy to see, on the principles already ex- 
plained, in what manner this difficulty will be met. In 
the first place, inasmuch as money prices are lower than 
any others ; that is, as specie retains its former value in 



OF THE FUNCTIONS OF MONEY. 211 

all other places, but here, it is dearer; that is, will pur- 
chase more than any other commodity ; other nations 
will send specie in exchange. This will be done, until 
the equilibrium is restored. And thus, this one nation 
shares the blessing of God's providence with its neigh- 
bors, since they receive its productions at a less price. 
In the second place, something else, as, for instance, 
notes of hand, will be, in part, substituted for specie ; 
that is to say, as there is too much exchanging to be 
done in a given time by the instrument, at its utmost 
power of working, the work is spread over a longer 
time, and, instead of exchanging for specie now, the 
parties agree to exchange, but defer tbe payment for 
three or six months. Thus, when a weaver is unable to 
perform the work of his customers to-day, he promises 
to do it at a subsequent time ; and, in the mean while, 
if his present instrument will not accomplish it, he pro- 
cures others that will. So, the merchant spreads the 
exchange of to-day over a larger time, and, in this 
lime, is able to secure the instrument to accomplish the 
object. 

And thus we see, what is also an unusual plentiful- 
ness of money. If, while exchanges were at fifty mil- 
lions, and one million ounces of silver were necessary to 
effect them, a mine were discovered, by which the quan- 
tity in circulation was doubled, the price of silver would 
fall, and we should give twice the usual price for com- 
modities. Or, if while the silver remained the same, 
production, and, of course, exchange, diminished one 
half, the result would be the same. In this case, as we 
have already seen, specie would be sent in exchange to 
other countries, because it was less needed, and its place 
would be supplied by other productions which were 
more needed. 

Hence we see, that a plentifulness or a scarcity of 
money forms no occasion which calls for the interference 
of government, but that it is a matter, which, if left 
alone, will regulate itself. When money is really 
scarce, there is no need of prohibiting its exportation ; 
for no one will be so unwise as to export it. When it 



212 OF THE FUNCTIONS OF MONEY. 

is abundant, it is useless to prohibit its exportation, be- 
cause it cannot be prevented ; and because, if it could 
be prevented, by preventing it, we should deprive our- 
selves of the only method in our power of alleviating the 
evils which we suffer. The precious metals are rela- 
tively abundant in the states of South America ; that is, 
they need other kinds of capital more than they need 
this. How absurd a policy would it be, to forbid the 
exportation of those metals, and thus deprive themselves 
of all the conveniences of other countries, nay, of the very 
means on which progress in civilization and the arts, and 
in the real accumulation of wealth, depends. 

Hence the nation, that the plentifulness or scarcity of 
money is an unfailing indication of the prosperity or of 
the adversity of a country, is, in the highest degree, fal- 
lacious. If the scarcity result from an increased pro- 
ductiveness of labor, it is an indication of prosperity ; 
just as the business of weaving is most prosperous, when 
the weavers have more work than they can do. If it 
result from a casual withdrawment of specie, it is an am- 
biguous indication, and its effect upon the country will 
depend upon the use which is made of that which is sent 
abroad. If it be employed in wars, or in other unpro- 
ductive consumption, it is just so much loss ; and it 
matters not whether this amount of loss be in silver, or 
gold, or copper, or tea, or coffee, or cotton. If it be 
well invested, and return in the form of a profitable ad- 
dition to the capital of the country, it is just as much a 
source of gain, as though the same profit were made up- 
on any other article. It is profitable for an individual to 
give one thousand dollars for what is worth fifteen hun 
dred dollars, although, for a month afterwards, he be 
obliged to live somewhat more economically. And 
what is profitable for the individual, is profitable for the 
country. 

And so of the plentifulness of money. If a mine 
were discovered, by which the quantity of silver were 
doubled, and if this silver were produced at a fair profit 
to the miner, it would be an advantage, inasmuch as it 
would open a new and profitable method of employing 



OF THE FUNCTIONS OF MONEY. 213 

both capital and labor. But, in this case, it could be of 
use only by its exportation, because, as the number of 
exchanges in the country has not been increased, only 
the former amount of value is needed for a circulating 
medium, and to increase the quantity, will be only to 
diminish the value. By being sent abroad, capital, in 
other forms, susceptible of change and increase of val- 
ue, is imported ; and thus, a country is made richer. 
If the plentifulness be the result of the diminution of 
exchanges, it is an indication of adversity, because it 
shows that productiveness has fallen off, that the means 
of living are less abundant, and that capital is in haste to 
flee to more congenial climes. When this is the case, 
it generally springs from oppressive legislation. In this 
case, it is better for a government to remove the cause, 
than to aggravate the evil by additional and aggravated 
wrong. To prohibit the exportation of specie, in such 
a case, is not only to oppress a human being, but to for- 
bid him the use of any means by which he shall escape 
from your oppression. 

Thus it follows, that no indication of the prosperity 
of a country can be derived, either from the plentiful- 
ness or from the scarcity of money. The only sure in- 
dication of its economical prosperity, is the increase of 
its productiveness ; that is, an increase of the supply of 
objects of desire at the same, or at a diminished 
amount of labor. The increase or diminution of the 
quantity of specie in circulation, is of importance, only 
in so far as it indicates this increase of productiveness, 
and no further. We estimate a man's prosperity, not 
by the amount of money in his possession, but by his 
power to command a larger or a smaller amount of the 
objects of desire. 

V. And hence, we may judge of the truth of that 
oft-repeated, but worse than puerile maxim, " It mat- 
ters not what becomes of property, so long as the mon- 
ey is in the country." If a million of dollars be lost in 
an unprofitable canal, or ten millions are sunk by a profit- 
less experiment in manufactures, we are told, that it is 
all of no consequence ; nobody is any poorer, because 



214 OF THE FUNCTIONS OF MONEY. 

the money is in the country. That is, if a million dol- 
lars' worth of labor and capital have ceased to exist, we 
are no poorer than we were when this capital was exist- 
ing, and yielding to its owners, and, of course, to the 
public, its annual production. If so, why not invest the 
whole capital in this manner, or why not pay men for 
throwing it all into the sea ? The money was merely 
the instrument which we used to effect its destruction ; 
and surely, we are but little better off, because the 
means of destruction remain. If a thief, in the night, 
had emptied your store-house with a wheelbarrow, you 
would not be very easily convinced you were no poorer, 
because he had left the wheelbarrow behind him. In 
the late disastrous fire in New York, it is said that fifteen 
millions of capital were consumed. I did not hear that 
any specie was destroyed, and yet, I think it would be 
difficult to show to the sufferers, that no harm was done, 
because the money was all in the country. Now, it 
matters not in what manner property is rendered value- 
less, whether by fire, or by folly. It matters not, 
whether fire does the work for nothing, or whether you 
hire workmen to do it at heavy wages. It matters not, 
whether the fifteen millions be turned into ashes, and 
thus rendered valueless, or whether it be turned into a 
canal, which is equally valueless. If your store and 
goods are burned up, you would give away the ashes. 
If it be turned into a canal, which you would be equally 
willing to give away, in what respect are you better off 
in the one case, than in the other. 

VI. We have already seen, that the natural price for 
the precious metals is the cost of their production, and 
that a given amount of them will be required for effecting 
the exchanges of the community. Suppose, now, these 
metals to be indestructible, and unchanged in quantity, 
and the quantity of other productions annually created, to 
be, for fifty years, the same ; it is evident that specie 
and other products would, at the end of that time, bear 
the same ratio to each other, as at present ; that is, the 
money prices of all commodities would remain unchang- 
ed. But neither of these is the case. In the first place, 



OF THE FUNCTIONS OF MONET. 215 

the .productions of the earth annually increase ; this is 
evident, from the increase of its number of inhabitants. 
And, on the other hand, the precious metals are annually 
produced, in large quantities, from the mines. But they 
are also destructible, and suffer slightly from wear and 
tear, when used as coin ; and they are also rapidly con- 
sumed in the purposes of the arts. Now, if these two 
causes exactly counterbalanced each other ; that is, if 
the supply of the precious metals were precisely such as 
to correspond to the increase of productiveness, arid to 
the amount consumed in the arts, prices would still re- 
main as before. If the increase of the metals were not 
sufficient to supply the increased demand arising from 
increased productiveness, and other causes, the price of 
the metals would rise ; that is, the price of other things 
would fall. And if, on the other hand, the increase of 
the metals were greater than the increase of productive- 
ness, their price would fall ; that is, the price of other 
things would rise. Now it appears that, previously to 
the discovery of America, for several centuries, there 
was no great change in the relative value of specie and 
that of other commodities. That event, however, by 
throwing upon the world an immense amount of the 
precious metals, effected, at once, a great change in their 
value. As they are but slowly consumed, this diminu- 
tion of their value continued for some time to increase. 
This depreciation was still more advanced, by the 
troubled condition of Europe, which prevented- the de- 
velopment of her productive energies ; and by the slow 
progress which she was making in the arts of civiliza- 
tion. But, of late, in consequence of the introduction 
of machinery and the division of labor, and of improve- 
ments in government and legislation, the increase of 
productiveness has more than kept pace with the in- 
creased supply of the precious metals. Hence, of late, 
prices have fallen ; and this has been specially the case, 
in consequence of the peace of the world, for the last 
twenty years, since the fall of Napoleon. 

These remarks are illustrated by the following facts : 
The quantity of wheat, in France, which was ex- 



216 OF THE FUNCTIONS OF MONEY. 

changed in 1520, for 512 grains of silver, was exchanged 
in 1536, for 1063 grains ; in 1602, for 2060 grains ; 
and, in 1789, for 2012 grains ; thus designating a varia- 
tion in the prices of silver, according to the principles 
which we have suggested. 

Now, as the progress of geology, mining, and min- 
eralogy, will probably greatly increase the production of 
the precious metals in future, it is probable that their 
prices will continue to fall. Hence, when indefinite 
leases are given, it is wise never to fix a rent at a given 
amount of silver per annum, but at a given amount of 
some other less variable product, such as wheat. Or it 
would, perhaps, be better still, to average the rent at 
definite periods, on terms which should be equitable, 
and of which neither party could take any advantage. 
The oldest professorships in Oxford, were established 
upon a salary of £40 sterling a year. This sum was, 
probably, then sufficient to support a teacher hand- 
somely ; and was equal to the rent of an ordinary farm. 
If a farm had been leased then, at £ 40 per year, per- 
petually, the rent, at this time, would have been but a 
very small part of its value.* 



SECTION IV. 

OF THE AGENCY OF GOVERNMENT, IN RESPECT TO 
A CIRCULATING MEDIUM. 

We have, thus far, said nothing concerning the agency 
of government, in respect to a circulating medium. 

* It is difficult to ascertain, with -any degree of accuracy, the an- 
nual supply and the annual consumption of the precious metals. 
McCulloch, a high authority, estimates the supply from the Ameri- 
can, European, and Russo-Asiatic mines, at six million pounds ster- 
ling per annum, and the consumption, for the purposes of the arts, 
at nearly four millions ; leaving somewhat more than two million 
pounds sterling of silver and gold, for the purposes of coining. 

Dictionary of Commerce: Art., "Precious Metals." 



AGENCY OF GOVERNMENT. 217 

The reason is, that, thus far, the necessity for the exer- 
tion of such agency has not been apparent. Two men 
use money, in exchange, for the same reason that a man 
uses a hammer for the purpose of driving a nail ; be- 
cause he thus economizes both time and labor. All 
men use money in exchanges, for the same reason that 
all men use hammers for the purpose of driving nails ; 
because they all find that they thus save time and labor. 

Had governments no agency at all in the matter, the 
precious metals, as a circulating medium, might have 
been both introduced, and universally employed ; and 
the) would have been so introduced and employed, as 
the) actually were, m the time of Abraham. Hence, 
as we have before remarked, a circulating medium, de- 
rives its use, as money, from its inherent fitness, and 
the desire of men so to employ it, and not from any 
agency of government in establishing it. While, how- 
ever, this is the case, and while this is always to be 
borne in mind, there is yet some agency, which society, 
or government, which is its agent, may exert, that shall 
increase the convenience of whatever may be used as a 
circulating medium. 

This agency has reference to two circumstances. 

1 . Whenever any substance has been found univer- 
sally adapted to the purposes of exchange, it is important 
that it should be used by all men, unless something to 
the contrary be specified by particular contract. If I 
owe a man for a hat, and when I come to pay him, he 
demand payment, not in silver, but in beaver skins, I 
may not be able to procure them, and he may hold me 
his debtor, and imprison me accordingly. If I, instead 
of paying him in silver, offer him leather, and declare 
that I will pay him in nothing else, he will be defrauded 
out of his due. Now, to prevent disputes without end, 
it is desirable that something be fixed upon, of which 
the tender shall discharge forever the debtor's obliga- 
tion. And as this would most naturally and most justly 
be the substance which all men have chosen for a circu- 
lating medium, this is most properly chosen. Hence, 
society or government have a right to establish the 
19 



213 AGENCY OF GOVERNMENT. 

precious metals as a legal tender; that is, to enact, thai 
if a man declare that I owe him ten dollars, and I offer 
him ten silver dollars, if he choose not to receive them, 
I am under no obligation to give myself any more 
trouble about it. The tender, on my part, is a full re- 
lease. I am under obligation to offer nothing else ; and 
he has no right to demand any thing else. Nor is there, 
in this, any oppression. If a man wish to be paid in 
something besides money, he can always specify it in the 
contract ; and thus his object can be accomplished. 
The whole effect of such a law is, to prevent disputes, 
and to enact what shall be a full and valid release from 
obligation, when nothing specific has been agreed upon. 
But, secondly : If any substance be used as a circu- 
lating medium, it is evident that its utility will be great- 
ly increased by several circumstances. Of these, the 
principal are : — 

1 . That it be of uniform purity. Were it otherwise, 
every piece must be tested by chemical analysis. This 
would be, of course, impossible ; and hence its utility 
would be greatly diminished. 

2. That it be divided into portions of such a size, as 
shall be most convenient for the purposes of exchange. 
Were coins a foot in diameter, or as small as the head 
of a pin, they would, in either case, be almost useless. 
The former could be used only in large exchanges ; the 
latter would be so small as to be frequently lost, and of 
so small a value as to consume a great deal of time in 
counting them. 

3. That it should be so prepared, that each piece 
shall, on inspection, indicate its value, and also indicate 
that no change has been effected in that value, by de- 
sign. To give to the precious metals these qualifica- 
tions, is the intention of coining. 

But it is evident, from a moment's consideration, that 
the preparation of coin, in this manner, for the public 
use, could never be safely entrusted to individuals. 
The temptations to dishonesty are too great for ordinary 
human virtue. It is evident, that such a work should 
be executed by those, whose interest would lead them 



AGENCY OF GOVERNMENT. 219 

to perform it with the greatest possible fidelity. Hence 
it is, that individuals have, in all civilized countries, sur- 
rendered the right of coining money to the whole soci- 
ety, that is, to government ; and governments have exe- 
cuted it by means of agents appointed for that purpose. 
These agents should always be placed under such cir- 
cumstances, that their interest is strongly on the side of 
honesty ; and the supervision over them should be of 
such a nature, that any failure, either of skill or of in- 
tegrity, could be easily detected. 

Such are the limits, within which the powers of gov- 
ernment, in respect to money, are restricted ; and such 
is the reason, for which this power is conferred. Of 
the manner in which a government should execute this 
trust, it is only necessary to add a few remarks. 

1. It is the business of the government to regulate 
the purity of money. Inasmuch, however, as this 
whole power is conferred for the public convenience, 
the exercise of this power should never be on the ground 
of arbitrary enactment, but of public convenience. 
Thus, as money is liable to loss from wear, and as this 
loss is rendered less by the addition of a small portion 
of alloy, which renders it harder ; and, also, as the puri- 
fication of the precious metals from all alloy, would be 
a process of great and useless expense, it is for the con- 
venience of all parties, that some portion of alloy should 
be allowed to remain when the metal is prepared for 
coining. The decree of this adulteration should, how- 
ever, be fixed by law, and should thus be publicly 
known, and should be invariable. 

2. The government should regulate the size and form 
of the coin. 

The size of the pieces should be such, as shall best 
adapt them to the purposes of exchange. 

Their relative proportions to each other, should be 
such as to adapt them most conveniently to the purposes 
of enumeration. On this account, the decimal system, 
adopted by the United States, is probably preferable to 
any other. The size having been once fixed upon, it 
should remain invariable. 



220 AGENCY OF GOVERNMENT. 

In respect to the form of money, we may add : 

1. It should be adapted to convenience for counting. 
On this account, flat coins are always preferred. 

2. It should present the least possible surface to fric- 
tion. On this account, the thicker the pieces are, the 
better, provided they be not inconvenient for piling. 

3. The whole surface, or so much of it as is possible, 
should be so ornamented, that if any of the metal'should 
be feloniously filed, or worn away, it may easily be dis- 
covered. For the same reason, the edges should always 
be milled. 

4. To reduce the amount of friction, as much as pos- 
sible, the rim of the edge should be so raised as to pro- 
tect the face. 

It would be of advantage, also, if the amount of pure 
metal in every piece were always stamped upon its face. 
This would be an additional check against any interfer- 
ence on the part of government, with the purity or the 
weight of coin. It would also allow persons entering 
into contracts, to make them either in weight or in de- 
nomination, as they chose ; and thus, give them addi- 
tional means of protection against interference of this 
sort, even if were attempted. 

Inasmuch as a piece of metal coined is worth more 
than a piece uncoined ; that is, as it has additional value, 
derived from the means of verification conferred upon 
it ; as this additional value is the property of the owner, 
and as the conferring of it is a costly operation, it is 
right that the owner should pay for it. Were nothing 
charged for it, as it is worth more when coined than 
when uncoined, when it could not profitably be sent 
abroad in one form, it might be so sent in the other 
form ; hence, when it could not be sent in bullion, it 
might be coined, and sent away in money. Hence, 
there would be, in such a case, a premium given to its 
exportation. But, on the other hand, the charge for 
this operation should be just sufficient to defray the ex- 
penses of the work. If more than this is charged, so 
that coining would be a profitable business, it would 
soon be done by private individuals, for gain ; and the 



AGENCY OF GOVERNMENT. 221 

country would be flooded with coin made in other coun- 
tries, and be thus liable to great imposition. The gov- 
ernment would thus soon lose the business. If it be 
done at the lowest practicable price, as no one can 
make any thing by the operation, all temptation to pri- 
vate coining is taken away. 

Inasmuch as money is liable to continual wear from 
friction, and as it is thus steadily, though slowly, dimin- 
ished in value, it at last becomes so much worn, as to 
be unfit for circulation ; because its impression is ef- 
faced, and also because it contains much less than the 
standard quantity of metal. When it becomes thus unfit 
for circulation, on whom is the loss to fall, on the last 
holder, or on the whole community ? Doubtless, on 
the latter. The last holder has derived no more benefit 
from it, than any one of the thousand holders, each one 
of whom has contributed, by using it, to depreciate its 
value ; and there is no reason why he, in preference to 
any other, should bear the whole loss. In other words, 
worn-out coin should always be received at the mint, at 
par, and exchanged for new. This remark, however, 
should apply only to worn-out coin ; and not to coin 
which has been fraudulently diminished in value. 
Pierced or clipped coin, should not be exchanged. 
This will tend to prevent every one from receiving it ; 
and will thus tend to keep it in the hands of those who 
have robbed it of a part of its value. 

If such be the agency which a government is called 
upon to exert, in respect to a circulating medium, it will 
be seen that it has no right to interfere in any other re- 
spects. Hence, for instance : 

1. It has no right to prevent the exportation or im- 
portation of specie. This, like any other commodity, 
if let alone, will regulate itself. Specie will never be 
sent abroad, unless it be for the advantage of the coun- 
try that it should be so sent abroad. The actual mone- 
tary condition of a country cannot be affected by arbi- 
trary acts. Besides, a man has the same right over 
whatever silver or gold he may possess, as he has over 
cotton, or wool, or any thing else ; and he has just the 
19* 



222 AGENCY OF GOVERNMENT. 

same right to exchange it loilh any one, and for any 
thing, as he may think for his advantage. 

2. A government has no right, arbitrarily, to alter 
the value of money ; that is, to say that a dollar shall 
contain either more or less silver than it now contains. 
To do so, is, of necessity, to interfere with private con- 
tracts ; and thus to expose one half of the community, a 
prey to the dishonesty of the other half. It A have 
promised to pay B one thousand dollars ; meaning, by 
this, one thousand ounces of silver ; and the govern- 
ment enact that the dollar shall hereafter contain only 
half an ounce of silver, and oblige B to receive half 
ounces, instead of ounces ; they defraud him of pre- 
cisely half his due. This will be the case, not only 
with B, but with all the creditors in the whole commu- 
nity. It is just the same interference, as though they 
should enact, that a debt of one thousand bushels of 
wheat should be paid with five hundred bushels ; or, 
that a debt of a yard of broadcloth should be paid with 
half a yard. 

If, however, the coin, by common consent, is found 
to need a change of any kind, and the public conven- 
ience actually require it, it is to be done by common 
consent, after sufficient notice of the change lias been 
given, and be so done, that all contracts existing at the 
time, be left inviolate. If the amount of silver in a dol- 
lar, in this country, should ever be changed, it should 
be effected by exchanging, at the mint, the present dol- 
lar, at its value in silver, for a new dollar, at its value in 
silver ; so that all contracts now in existence, should be 
fulfilled according to the terms of the agreement. A 
still better method would probably be, to issue a new 
coin, with another name. This, 1 believe, has lately 
been done in Great Britain. Instead of the guinea, of 
twenty-one shillings, a gold coin, of twenty shillings, has 
been introduced, called a sovereign. 

3. A government, I think, has no right to fix the rel- 
ative value between the precious metals. This cannot 
be done, in fact, because the relative value is liable to 
continual fluctuation. If both are a legal tender, the 



AGENCY OF GOVERNMENT. 223 

debtor has the right of paying in that which he prefers , 
and, as he may be always expected to choose to pay in 
the cheaper, he may thus frequently defraud his creditor 
to the amount of the fluctuation. It is better to have 
but one a legal tender, and leave the other, as any other 
matter of merchandise, to be exchanged by special con- 
tract between the parties. In this respect, I think the 
system of Great Britain preferable to our own. Gold, 
as has been remarked, is there the only legal tender, for 
all sums above twenty shillings ; and silver, for all sums 
below that amount. Hence, whenever contracts are 
made, their amount determines the metal, in which the 
payment is to be made. 

Mr. Condy Raguet, in his last treatise on currency 
and banking, has, we think, conclusively shown, that 
the present law fixing the relative values of silver and 
gold in this country, is, in every respect, injurious. Its 
tendency, clearly, is, to drive the one or the other metal 
out of the country, and thus to diminish, instead of in- 
creasing, the amount of specie in circulation. And, 
besides, inasmuch as the legal tender in Great Britain is 
gold, it would be much better that ours should be silver. 
A scarcity of specie in one country, would thus be less 
felt in the other. This is a consideration of great mo- 
ment where two nations are so closely connected as this 
and Great Britain. As we are at present situated, the 
least variation in one country is immediately felt in the 
other. 



224 



CHAPTER THIRD. 

OF A CIRCULATION BY MEANS OF A PAPER 
CURRENCY. 



SECTION I. 

OF THE NATURE OF BANKS IN GENERAL. 



BARKS OF DEPOSIT AND EXCHANGE. 

We have already treated somewhat at large upon the 
subject of division of labor ; the circumstances in our 
constitution by which it is introduced ; and the benefits 
which result to every class of the community from its 
introduction. We have also seen, that division of labor 
is always carried on most successfully, when it is united 
with the use of some natural agent. Thus, in the man- 
ufacture of cotton, by the union of steam or water power 
and machinery, with division of labor, production is 
greatly increased ; and every class of society is en- 
riched. And we have also seen, that the one could not 
be carried to great perfection, without the employment 
of the other ; and also that, in the nature of things, the 
one actually suggests and renders necessary the employ- 
ment of the other. 

Now, all these remarks apply, with the same force, to 
the labor of exchange, as to any other labor. From the 
necessities of society, it is evident that a very large por- 
tion of its labor must be the labor of exchange. The 
increase of this labor would naturally lead to the discov- 
ery of some natural agent, by which it might be exe- 
cuted at less expense of time and industry. At first, 



BANKS OF DEPOSIT AND EXCHANGE. 225 

the rudest instruments, such as cattle, and the baser 
metals, were employed. These gradually gave place to 
the more perfect instruments, gold and silver. As the 
use of this more productive instrument increased very 
greatly the number of exchanges, and thus required 
more laborers, instead of fewer, in this department of 
industry, it was natural, in the next place, that divisions 
of labor should be introduced, in order to use the instru- 
ment, or natural agent, with the greatest degree of suc- 
cess ; and also to accomplish, with a given amount of 
industry, the greatest amount of exchanges. 

Division of labor., in this department of industry, as in 
every other, has proceeded from rude beginnings, to 
greater and greater perfection. At first, its benefits 
were but imperfectly appreciated. By experiment, 
they were more and more unfolded ; and now, although 
its principles may not be generally understood, yet, it is 
coming into very general use throughout the civilized 
world. Instead of banks in none but the great marts of 
trade, as was the case a century or two ago, we find 
them, in free states, employed in towns and villages, 
over the whole community ; and, when judiciously ad- 
ministered, their effects are the same upon the small, as 
upon the great sections of the community. 

The word bank, is said to be of Italian origin. " In 
the infancy of European commerce, the Jews in Italy 
were wont to assemble in the market places of the prin- 
cipal towns, seated on benches, ready to lend money ; 
and the term bank, is derived from the Italian word 
banco, a bench." When any of these money-lenders 
failed, his bench was broken. Hence, the origin of the 
word bankrupt. 

1. We have shown how very great, in a civilized 
country, must be the amount of exchanges. We have 
also shown that these exchanges are greatly facilitated 
by means of the use of a metallic currency. But it will 
be evident, that, were the labor of exchange divided no 
more perfectly than we have thus far supposed, a variety 
of inconveniences would unavoidably occur. Among 
these are the following: 



226 BANKS OF DEPOSIT AND EXCHANGE. 

1. Were men thus to keep on hand so large an 
amount of the precious metals, and actually to make 
their exchanges by means of metallic transfer, much time 
would be consumed in transportation. A large number 
of persons must be employed constantly, in no other 
business than in carrying silver and gold from one mer- 
chant to another, in the same place, and between the 
merchants in different places. 

2. Were exchanges to be made directly, through the 
medium of money, it is evident that every payment must, 
of necessity, be counted by both parties. This, in 
large payments, would consume much time, and cause 
great wear and tear of the coin. Were a large mercan- 
tile house, which transacts exchanges to the amount of 
from ten, to one hundred thousand dollars' worth in a 
day, obliged to count all the money paid and received, 
every one must see that more than thrice the present 
number of agents must be employed ; and thus, the ex- 
penses of the establishment would be greatly increased. 
The effect of this additional expense of labor, would be 
very greatly to increase the cost of exchanges ; that is, 
the price of products. 

3. The precious metals are small in bulk, and there- 
fore, are very liable to be stolen. The pieces of the 
same denomination being of precisely the same form and 
impression ; if stolen they cannot be identified. Hence, 
more than usual care is necessary, in order to secure 
them against robbery. Were every individual, there- 
fore, to keep on his premises, the whole amount of the 
precious metals necessary to effect his exchanges, every 
one would be obliged to guard his property with increas- 
ed vigilance, both by day and by night.* He would be 
his own banker, and must add to his present expenses, 
all those expenses necessary to the security of a bank. 

But let us now see by how simple an arrangement all 
these difficulties might be obviated. Suppose this labor 



"It is appropriate here to remark, that the establishment of banks 
has, on this account, greatly diminished the frequency of the Crimea 
of house-breaking and highway robbery. 



BANKS OF DEPOSIT AND EXCHANGE. 227 

were divided, and that all the merchants in a town, in- 
stead of being every one his own banker, agreed togeth- 
er to employ a single person to become the banker for all 
of them. Let us suppose this person to procure a safe 
repository for all the specie in the neighborhood, and to 
become responsible for its safe keeping. Suppose, also, 
that these merchants, instead of keeping their money 
themselves, all lodged it with him, and that he opened 
an account with each one, crediting him with whatever 
he deposited, and debiting him to all that he withdrew ; 
and that every one was at liberty to withdraw, at any 
moment he chose. 

It is manifest, that in such a case, if A owed B one 
thousand dollars, he would not send to the bank and 
withdraw the money for B to replace it again, but would 
give to B an order for one thousand dollars, which B 
would present to the banker, and the one thousand dol- 
lars would be withdrawn from A's account, and added to 
that of B. If B owed C, he would do the same. C 
would do the same to D, and perhaps D would owe A, 
and would pay him in the same manner. At the close 
of the day, their bank accounts would stand just as they 
were at the beginning ; and yet there have been four pay- 
ments made and received, of one thousand dollars each. 
Yet, not one cent of the specie has been touched. Not 
a dollar of it has been counted. It has been all done 
by a (ew entries made on the books of the bank, and 
done in a very few minutes. In this manner the writing 
of a few lines saves all the labor of repeated transporta- 
tion, of as frequent counting of coin, and also all the 
cost of wear which must arise from every such opera- 
tion. Besides, inasmuch as no more vigilance is neces- 
sary to secure from depredation the whole sum of specie 
than any one part of it, it is evident that great additional 
labor is saved in this respect also. 

Suppose, now, the business of this society to become 
so extensive, that one banker is unable to transact the 
operation of all of these transfers, and another is also 
employed, who opens another banking-house on the same 
principles. If we bear in mind the fact, that the pur- 



228 BANKS OF DEPOSIT AND EXCHANGE. 

chases and sales must, in the end, be equal to each oth- 
er ; that is, that every man receives as much money as he 
pays away, the transactions of the day must, as before, 
equalize each other. If both parties transact their busi- 
ness at the same bank, this, as it has been just shown, will 
be the case. If they transact their business at different 
banks, it will but slightly differ. A pays B in a draft on 
the first bank, which B deposits in the second bank. B 
pays C in a draft on the second bank, which C deposits in 
the first bank. At the close of the day, these banks ex- 
change drafts, and thus, without any labor or counting, or 
transportation, by merely writing a few words in a bank leg- 
er, the whole transaction is completed. It is hardly possi- 
ble to find a case, in which, by the division of labor, a great- 
er increase of productiveness is given to human industry. 
Now the case will be the same, if we consider the ^in- 
tercourse between different cities and different countries, 
or in different countries. It is to be borne in mind, that 
the sales and purchases of every society, as well as of 
every individual, must be, substantially, equal. The 
reason is obvious ; for a man can buy only as much as he 
can pay for ; and, as much as he can pay for, he will gen- 
erally buy ; and, if he buy skilfully, he will lose nothing 
by the exchange. In other words, all exchange is ulti- 
mately and substantially exchange in kind. And, as the 
things exchanged are, at the place of exchange, of equal 
value, the purchases and sales must be equal to each other. 
If Boston buy ten million dollars' worth of New York, 
it must send ten million dollars' worth with which to pay 
for it. If both parties made these exchanges by means 
of money, not only the goods, but also the money, must 
be transported to and fro, at every exchange. By a very 
simple arrangement all this trouble may be avoided. 
Thus, for instance, suppose A, in Boston, sells to B, 
in New York, ten thousand dollars' worth of domestic 
cottons ; he is entitled to draw on B for that amount ; 
that is, to order him to pay it, to whomsoever he will. 
Again : Suppose C, in New York, sells to D, in Bos- 
ton, ten thousand dollars' worth of French silks ; he, in 
like manner, is authorized V) draw on D, for that sum. 



BANKS OF DEPOSIT AND EXCHANGE. 229 

A sells his draft on B, to a bank in Boston, that is, he 
receives in Boston the money due to him in New York. 
C sells to a bank in New York the draft on Boston, 
that is, he receives in New York, the money due to him 
hi Boston. The banks exchange these drafts with each 
other, and collect the proceeds, receiving a percentage 
for their trouble. Thus, these debts mutually cancel 
each other, without removing the specie from one place 
to the other ; and with only the labor of making a few 
entries in a leger. In this manner the amount of money 
necessary to perform the exchanges of a country is 
greatly diminished, and all the loss to which money in 
transitu is exposed, is avoided. 

We see, therefore, that if the exchanges between two 
places were equal, the whole business, of payment might 
be made without the transfer of any specie whatever. 

But suppose the business between two places were 
not equal; that is, suppose that Boston purchased of New 
York more than it sold to that place ; suppose, for in- 
stance, that Boston purchased of New York ten million 
dollars' worth, and sold to that place only five million 
dollars' worth. In this case, one half the payments 
would be made in productions, in the manner we have 
already suggested. The remaining five millions must, 
however, be provided for, in some other way. One ob- 
vious way would be, to send this remainder in specie. 
But, it will be asked, how is this five millions of specie 
to be provided ? We answer, by sending the five mil- 
lions of products which would otherwise have been sent 
to New York, to some other place, where specie can 
be had at the cheapest rate ; and thus paying for what 
we have purchased at New York, by two exchanges in- 
stead of one. This is one method. Another method 
would be, for Boston to send five millions of her do- 
mestic products to some other market, say to the West 
Indies, and exchange it for some other product, say cof- 
fee, or sugar ; and remit these to New York, to pay the 
balance of her debt. This would be sold, the proceeds 
deposited in New York, and he who owed the New York 
merchant would purchase a draft in Boston, of him who 
20 



230 BANKS OF DEPOSIT AND EXCHANGE. 

had imported the coffee or sugar ; and thus the debt 
would be liquidated. 

Now, it is manifest, that it is, to Boston, of no con- 
sequence in which way she pays this debt ; whether by 
sending directly to New York ten millions of her prod- 
ucts ; by sending five millions to New York and five 
millions to South America in exchange, for specie ; or 
by sending five millions to New York and five millions to 
Cuba in exchange for cofFee and sugar. In either case, 
she pays but ten millions ; and the way in which it is 
paid is a matter of indifference. And it is, also, obvious 
in which manner Boston will choose to pay her debt. 
Every one who has a debt to pay, will pay it in that 
which will liquidate it at the least expense to himself. 
If five millions of specie can be procured by four and a 
half millions of other products, it will be best to pay the 
debt in specie. If sugar and coffee worth five millions 
in New York, can be purchased by four and a half mil- 
lions' worth in Boston, she will choose to import coffee 
and sugar in payment. And thus, the account will be 
adjusted, in every case, according to the interests and 
conveniences of the respective parties ; that is, of the 
whole community. 

This is the case, if we take into consideration two 
trading places in the same country. But the case is the 
same with the trading cities, over the whole world. And 
by thus allowing every thing to regulate itself, the whole 
business of exchange is adjusted. 

Suppose, for instance, that Great Britain has pur- 
chased of us more than we receive in return. There 
will then be a portion of her debt unpaid ; and there 
will then be a demand for something wherewith to pay 
it. In this case, drafts on America will rise ; that is, 
those who have payments to make will overbid each 
other, and drafts will increase in price. In this case, a 
French merchant, who has sent a cargo of silks to Amer- 
ica, will find that he can get more for it, by selling in 
London, drafts on his correspondent in New York, than 
by importing American produce. In this case, he will 
sell to the London merchant drafts to the whole amount 



BANKS OF DEPOSIT AND EXCHANGE. 231 

of his cargo ; that is, England pays France, for sending 
to America sufficient produce to pay the deficiency 
which she is unable, profitably, to supply from her own 
productions. In this manner, the deficiency of the ex- 
ports of the first country to the second, is made up by 
the excesses of a third ; and, as every one receives as 
much as he pays out, and imports, on the whole, as 
much as he exports, by free communication among them- 
selves, the balance is speedily adjusted. 

Hence, bills of exchange, or orders of paj^ment for 
goods already delivered at any particular place, become 
an article of merchandise, as much as any thing else. 
This being the case, it is of importance that some per- 
sons should devote themselves to this branch of labor. 
By these means, both parties know how they can be 
best accommodated. The sellers know where to sell, 
and the buyers where to purchase. For the transaction 
of this business, banks have great facilities, on account 
of the capital which they can command, and the commu- 
nication, which, for other reasons, they of necessity hold 
with each other, and hence they are most commonly thus 
employed. Almost all our domestic, and much of our 
foreign exchange is negotiated at present by means of 
banks. They act as brokers, by bringing buyers and 
sellers together, and, by reason of their communication 
with each other, they are enabled to transact the busi- 
ness of exchange of drafts with great security and at lit- 
tle expense. 

Such, I suppose to be some of the principal functions 
of banks, as offices of deposit. They, by means of di- 
vision of labor, diminish the amount of the circulating 
medium necessary to carry on the exchanges of a coun- 
try ; they greatly diminish the labor of transportation 
and of counting money in the same place, and almost 
remove the necessity of transporting it between different 
places. 

The Bank of Amsterdam was purely a bank of de- 
posit. It received the specie of the merchants of the 
city, and gave them acknowledgments, which were 
transferable, like specie ; and, by the transfer of these, 



232 BANKS OF DISCOUNT OR LOAN. 

on the books of the bank, all large payments were uni- 
versally made. And so great was the confidence in the 
management of the bank, that certificates of these de- 
posites were current throughout Europe. Adam Smith 
attributes the origin of this bank, to the desire of the 
Dutch to prevent their coin from migrating into the sur- 
rounding states, and being replaced by the inferior and 
debased coin, with which they were liable to be inun- 
dated. That this might have been the idea, from which 
the first conception of such a bank originated, is very 
possible. But, whoever will observe the advantages of 
such an institution, as they have been stated above, must 
be aware, that when the transactions of a commercial 
city became numerous, and the exchanges became ac- 
tive, merchants could not long fail of falling upon some 
instrument which their necessities so imperatively re- 
quired, and which all their habits of thought would be so 
likely to suggest. 

From what has been said, it is obvious, that when all 
other methods fail of adjusting the differences of ex- 
change between two places, specie must be procured, 
and remitted from the one to the other. This will al- 
icays pay the debt, and equalize the exchange. Hence, 
the highest rate of exchange, which, under natural con- 
ditions, is possible between two countries, is that which 
is sufficient to procure the specie, and to remit it to the 
place of payment.. 



OF BANKS OF DISCOUNT, OR LOAN. 

We have already seen, that all production is the re- 
sult of the application of industry to capital. But we 
also see, that the capital and the industry are frequently 
in the hands of different persons. One has capital, but 
does not wish to labor with it himself. Another has in- 
dustry and skill, but has no capital, with which to create 
products. It will be at once seen, that it will be a great 
advantage to both parties, if the capitalist can loan his 



BANKS OF DISCOUNT OR LOAN. 233 

capital to the laborer, and receive from him a fair com- 
pensation ; while the laborer, by uniting capital with his 
industry, will be able, after paying this compensation, to 
retain a handsome remuneration for himself. 

For the accomplishment of this result, the introduc- 
tion of a circulating medium presents great facilities. A 
flour merchant might have more flour than he wanted, 
and would be willing to loan it to another person, who 
wished to establish himself in business ; but, perhaps, the 
person who applies to him for the loan, understands noth- 
ing but the trade in iron. The capital of the one, there- 
fore, in this case, could be of no service to the other. 
But let the flour merchant convert his flour into money, 
and then he can loan it to any one who needs it, no 
matter what may be the occupation in which he hopes to 
be the most successful. 

As men accumulate capital, they are enabled thus to 
loan. There are always multitudes of persons who wish 
to borrow. But he who is willing to loan, is also fre- 
quently engaged in active business, and can rarely take 
pains to ascertain the character of the borrower ; neither 
may he have any means of so observing his affairs, as to 
secure himself, in season, against the results of dishones- 
ty. Hence, his risk of loss would be great ; the rate of 
interest high ; the time requisite to effect and to watch 
over loans, great ; and there would be, on the part of 
the capitalist, but little disposition to part with the im- 
mediate control of his means. 

Thus, also, if a mechanic or merchant wished to bor- 
row of a private capitalist, he would not know to whom 
to apply ; much lime would be lost in finding a capi- 
talist ; and, if the capitalist were timid and suspicious, 
it might be utterly impossible to satisfy him that the se- 
curity was sufficient., unless it were in property with 
which he was acquainted ; or, unless the money were to 
be employed in operations with which he happened to 
be conversant. Thus, a great inconvenience would be 
suffered, both by those who were willing to lend, and by 
those who wished to borrow money ; that is, capital. 

Now, it is obvious, that these inconveniences would 
20* 



234 BANKS OF DISCOUNT OR LOAN. 

be greatly relieved, if, by a division of labor, some per 
sons were set apart for the express purpose of loaning 
money. In this case, those who had more capital than 
they wished to employ, would exchange it for money, 
and place it in the hands of the money lender ; and 
those who wished to borrow would go to him for such 
accommodations as they needed. He would attend to 
the whole business of loaning, and collecting both the 
principal and the interest, thus acting as the agent of the 
capitalist, and receiving for himself a fair compensation 
for his expenses, labor, and skill. 

In this manner, banks perform the service of bringing 
together the lenders and borrowers, so that he who has 
any thing to lend, can lend it, if there be any one who 
wishes to borrow ; and, so that he who wishes to bor- 
row, can borrow, provided there be any one who wishes 
to lend. And thus, by bringing the wants of both parties 
to act upon each other, each has the advantage of loan- 
ing or of borrowing, on the most favorable terms. 

Nor is this all. When this is once accomplished, the 
whole may be done in the shortest possible time ; be- 
cause, the greatest part of the time, without such an 
arrangement, would be spent in bringing together two 
individuals who could agree upon the loan in question. 
Hence, a negotiation, which might otherwise have taken 
half a day from the labor of both parties, may now be 
perfected, in a very few minutes. This is a great sav- 
ing of time and labor, and contributes greatly to the 
punctuality of the whole community, which is a still fur- 
ther saving of time and capital. 

Besides, we have already shown, that when a man de- 
votes himself to any occupation, and to nothing else, he 
will acquire a skill which can never be attained by him 
who only practises it occasionally. This principle ap- 
plies with full force to the present case. He whose 
only business it is to loan money, will keep himself, at all 
times, acquainted with the state of the money market ; 
he will ascertain the character and responsibility of the 
individuals who are desirous of loans ; he will be the first 
to ascertain the indications of their failure, either in skill 



BANKS OF CIRCULATION. 235 

or in fidelity ; and will, therefore, be the best prepared 
to decide, whether it be necessary to withdraw capital 
from a debtor. This will be especially the case, if there 
be interested in the management of the funds thus collect- 
ed, several men engaged in general monetary operations, 
and who, therefore, are likely to collect all the informa- 
tion on these subjects, that may at any time be afloat in 
the mercantile community. 

Such is the nature of banks, as offices of discount. 
Some of the private banks of Great Britain are of this 
character. They issue no notes of their own, but mere- 
ly negotiate the bills of other banks, or of the Bank of 
England. Of the same nature, to some degree, are 
Savings Banks, of which the object is, to collect the 
capital from small owners, and loan it out at interest for 
their benefit. 



OP BANKS OF CIRCULATION OR ISSUE. 

If banks were established on the principles which we 
have suggested, and if the depositors and contributors 
placed in the hands of the banker, metallic currency, it 
is evident, that the bankers or bank would soon collect 
a great part of the metallic currency in the country. 
Were this the case, it is evident that they might do a 
very considerable service to the community, by furnish- 
ing the depositor with a certificate of deposit, which he 
might use instead of the money which he had deposited. 
Thus, if I had deposited one thousand dollars in a bank in 
Providence, and wished to use it in New York, if their 
obligation to pay so much money to my order were in 
New York as good as specie, I could pay a debt in the 
latter place by making over this obligation to my creditor 
there, as well as by transmitting the specie. If a mer- 
chant in New York, who owed the same sum in Provi- 
dence, pursued the same course, one draft would bal- 
ance the other, and both debts would be paid. Again : 
The bank, upon sufficient security, might loan to me its 



236 BANKS OF CIRCULATION. 

obligation to pay on demand, and allow me to use this 
obligation in any place where it might be for my interest 
to do so. And still more readily might this be done, if 
a number of individuals had deposited in the bank spe- 
cie, for the purpose of having it loaned, at stated rates, 
to any persons who could offer a reasonable guaranty 
that whatever was borrowed would be, at an appointed 
time, refunded. It is always to be understood, that the 
bank obliges itself in all cases, to pay these obligations 
to the bearer on demand, in the precious metals ; and 
that hence, these notes represent invariably the value in 
the precious metals, which their obligation designates. 
And thus, from the nature of the case, a large amount 
of the money in circulation, would soon become specie 
certificates, or notes of obligation of the bank. And 
they would get rapidly into circulation, because of their 
greater convenience for transportation ; their diminished 
liability to robbery ; and the greater ease with which 
they could be identified in case they were stolen. 

But still further. It is manifest, that many of these 
bills thus issued by banks, in this condition, would never 
need to be repaid in specie, but would be cancelled by 
an equal amount of similar bills from other banks. 
Again : Of those for which specie was demanded, it is 
impossible that it should all be demanded at the same 
instant. And yet more : As some persons were receiv- 
ing payments in specie, other persons would also be de- 
positing specie, which would make good the deficiency 
which this withdrawal occasioned. Hence, from these 
causes combined, it is evident that a bank thus constitut- 
ed, might, without violating its engagement to pay every 
certificate or bill in specie, issue a larger amount of such 
obligations, than it at any time contained of specie in its 
vaults. And, inasmuch as it redeemed every such note 
on demand, with the precious metals, these notes would 
have, in exchange, the same value as the precious met- 
als, everywhere in the immediate vicinity of the bank ; 
and they might have the same value in other places, if 
this bank were in correspondence with other banks of 
the same character, in the different places with which 
its customers transacted business. 



BANKS IN THE UNITED STATES. 237 

Inasmuch as these notes possess some considerable 
advantages over specie ; that is, as they are lighter, oc- 
cupy less bulk, and are equal in exchangeable value to 
specie, they would be commonly preferred. That they 
are so preferred, every ono proves, every day, by his 
own conduct. When we take a check to the bank, and 
can receive for it, either notes of the bank or specie, we 
rarely take the specie, except in such quantities as may 
be required for small exchanges. From these reasons 
it is manifest, that under such circumstances, a portion 
of the currency in a country, when banks were estab- 
lished which had the confidence of the community, would 
become paper instead of metal. 

Now, banks, in this country, and in Great Britain, 
generally perform all three of these functions. They 
receive and pay out money on deposit, and keep all the 
accounts necessary to ihese transactions ; they loan 
money at interest, and ( ollect money so loaned ; and 
they also issue their own promissory notes, payable in 
specie, on demand. 

We shall close this section, by a brief notice of the 
manner in which banks are created in this country, and 
a statement of their sources of profit. 

Banks, in this country, are commonly chartered in- 
corporations ; that is, the privilege of banking is con- 
ferred on several associated individuals, by a special act 
of legislation. By these acts, banking companies are 
entitled to certain privileges, are subject to certain 
forms of -legislative inspection, and are restricted, in 
their operations, within such limits as the wisdom of the 
legislature may see fit to impose. These privileges gen- 
erally refer either to the mode of collecting their debts; 
or to the limit of the liability of the individuals, in case 
of failure ; or to the power of issuing bills on demand. 
And the restrictions limit the amount of their circula- 
tion, in proportion to their actual capital, or their specie 
in actual possession. 

When any number of persons desire to be incorporat- 
ed as a banking company, they present a petition to the 
legislature of the State in which they reside, praying for 



238 SECURITY OF BANKS. 

such privilege. If the prayer be granted, they are thus 
incorporated, and the amount of their capital is limited 
in the act. This sum is divided into shares, or equal 
portions, of such amount as may be supposed best suit- 
ed to answer the wants of the community. At a given 
time and place, publicly notified, books are opened for 
subscription ; that is, every one is allowed to subscribe 
for as many shares as be wishes. The subscribers are 
called stockholders, and the shares are commonly, in 
mercantile language, called stock. When the necessary 
amount has been subscribed the stockholders meet, and 
choose, from their number, certain persons to conduct 
the operations of the bank, who are called Directors. 
These directors then choose, from their own number, a 
President, and some person, not of their number, as 
Cashier. On these two last mentioned persons, the ac- 
tive duties of conducting the affairs of the bank depend ; 
though the directors meet, at stated times, for the pur- 
poses of general consultation, and especially to decide 
upon the commercial character of those, to whom they 
are requested to loan their money. 

The bank is thus organized. The subscribers are 
now required to pay to the cashier the sums which they 
have subscribed for ; that is, that portion of the amount, 
which each has agreed to invest in the general business 
of the bank. Suppose the capital were one hundred 
thousand dollars, and each share were one hundred dol- 
lars, there would then be one thousand shares, and might 
be one thousand stockholders. As soon as each one 
had paid the portion for which he had subscribed, one 
hundred thousand dollars would be collected in the bank- 
ing house, and this would be the capital, with which they 
would be prepared to commence their banking opera- 
tions. 

The manner in which these operations are conducted, 
is something like the following : The bank loans its own 
bills, payable in specie, to those who wish to borrow, 
and receives the notes of individuals, of equal amount, 
in return, and charges them interest, which is paid in ad- 
vance. The payment of these notes is always guaran- 



SECURITY OF BANKS. 239 

ned by some other person or persons, called endorsers. 
The ordinary period of loan, is thirty or sixty days ; at 
the close of which time, the notes are required to be 
paid, either in whole, or in part, at the discretion of the 
directors. Hence, if it were necessary, the whole af- 
fairs of the bank might be closed ; that is, all its bills 
might be called in, and all the notes it has received 
might be given up, and the bank remain as it was when 
it commenced, with the addition of whatever interest it 
might have acquired, in thirty or sixty days. 

Suppose, now, the capital of the bank were all paid 
in, in specie, and that it issued notes only to the precise 
amount of its capital. In this case, there would be a 
double and full guarantee for the payment of its bills. 
The first guarantee would be the specie in its vaults, 
equal to the amount of all its bills in circulation ; that is, 
for every bill it issued, there could be shown an amount 
of silver or gold, equal to what it had promised to pay. 
The second guarantee would be, the notes of the indi- 
viduals, of substantial responsibility, for an amount great- 
er than all the bills which the bank has issued, by the 
interest which was deducted from the note when it was 
received. Thus, suppose the capital of the bank to be 
one hundred thousand dollars, and that this has all been 
paid in specie. The bank loans one hundred thousand 
dollars of its bills, and receives one hundred thousand 
dollars' worth of the notes of individuals of sound pecu- 
niary ability. The bank is then liable to pay one hun- 
dred thousand dollars, and it has, wherewith to pay it, 
two hundred thousand dollars ; that is, one hundred thou- 
sand dollars in specie, and one hundred thousand dollars 
of the notes of individuals. I think that every one 
would be inclined to say, that such a bank was not only 
safe, but even superfluously safe. If all the debtors 
failed, and nothing was received for its issues, yet its 
notes would be safe ; for it would still have, in its vaults, 
sufficient to meet every demand, as soon as presented, 
even if all its bills were presented for payment at the 
same instant. 

Now, inasmuch as one perfect security is as safe as 



240 SECURITY OF BANKS. 

two, and, as this security is more than perfect, it might 
be diminished, and yet the bills of the bank be perfectly 
safe. Thus, it is morally certain, that all the bills of the 
bank can never be presented for payment at the same 
instant. If this can never be the case, as its debtors 
are continually paying back what they have borrowed, 
and, as it has, always, as much less to redeem, as it has 
already redeemed, it is manifest, that, with something less 
than the amount of specie designated by its notes, it may 
always be prepared to meet every demand that may be 
made upon it. Again : If all its debtors failed, it would 
still have, in its specie, if equal to its bills in circulation, 
enough to redeem all its issues. But, with any tolerable 
management, its debtors would not all fail. It would be 
a very unusual occurrence, if one half of them failed. 
The bank would be then perfectly secure, if the propor- 
tion of its specie capital, in actual possession, were suf- 
ficient to pay all deficits which could arise, from the fail- 
ure of its debtors. Hence, we see, that the ultimate 
security of a bank would always be perfect, if it always 
possessed enough, in specie capital, to redeem every 
bill as soon as it was presented, and also sufficient to 
guaranty the holder, against any injury which it might 
suffer, from the failure of its customers ; that is, if there 
existed this ratio between the issues of the bank, and 
the capital in its vaults, such a bank would be of un- 
doubted security. But ultimate security is not all that is 
in this case demanded. The bills of the bank must not 
only be redeemed at some time or other, they must be 
redeemed on demand, for this is what the bank promises. 
This is what the community has a right to expect, and 
this is essential to their character as money. Hence, it 
must always maintain its ability to redeem its bills in the 
precious metal, whenever they may be presented. 

If it went beyond this ratio, and Justin proportion as 
it went beyond it, there would be danger that its notes 
would not be redeemed, or if ultimately redeemed that 
they would not be redeemed on demand ; hence, that 
they would be of imperfect value, or even be valueless, 
and thus, that the holders of them would lose, to the 



SOURCES OF PROFITS OF BANKS. 241 

full amount or their depreciation. Thus, we see, in 
general, if the capital in specie were equal to the circu- 
lation., though all the debtors of the bank failed, the 
holders of its bills would lose nothing, but the stock- 
holders would lose all their contributed capital. If all 
the specie were stolen, and the notes were all paid, the 
holders would lose nothing, but the stockholders would 
lose all. But if there had been fraud, at the commence- 
ment, and no capital had been contributed, if the debtors 
of the bank all failed, the holders of the notes would lose 
all, and the stockholders would lose nothing. And, in 
general, if the debtors of the bank failed, the holders of 
the bills could lose nothing, unless the deficit thus creat- 
ed, were more than sufficient to consume all the actual 
capital of the bank. The capital of the bank, is the 
guarantee for the payment of the bills which the bank 
has issued in exchange for the notes of individuals ; and 
hence the holders of these bills cannot suffer until this 
capital, and the proceeds of these notes, be both ex- 
hausted. 



OF THE SOURCES OF THE PROFITS OF BANKS. 

1. From deposits. As banks are extensively used 
for this purpose," they must have on hand, at all times, a 
considerable amount, from this source, lying idle. This 
may be considered a part of their capital, which they 
may use in their business. If a bank have, on an aver- 
age, fifty thousand dollars of deposits, it may loan to a 
considerable amount beyond what would otherwise be in 
its power, because, it has this additional amount of means 
wherewith to meet the demands made upon it. The 
first source of profit, is, therefore, interest gained on de- 
posits. 

2. From exchanges. As these are to be made be- 
tween different places, and as they must be made in 
drafts or in specie ; if two banks, in different places, un- 
dertake to transact this business in concert, they may 

21 



242 THE UTILITY OF BANKS. 

greatly facilitate the means of payment between two pla- 
ces. For this accommodation, they charge a percen- 
tage, varying with the rate of the market. This is an- 
other source of revenue. 

3. From interest on notes discounted ; that is, on 
its regular loans. This is its great source of revenue. 
The manner of this has been already explained. 

4. As, from what has been said, it is evident that a 
bank may safely loan an amount of its notes, greater than 
that of its capital, the interest of this excess, is an addi- 
tional source of revenue. Thus, if a bank have one 
hundred thousand dollars paid in, and issue notes to the 
amount of one hundred and twenty-five thousand dollars, 
it receives interest on twenty-five thousand dollars more 
than its stockholders have deposited. This is an addi- 
tion to its revenue, by its amount, whatever it may be. 



SECTION II. 

OF THE UTILITY OF BANKS. 

In stating the nature of banks, in the preceding sec- 
tion, we have, to a considerable extent, unfolded the 
principles on which their utility depends. The subject 
is, however, susceptible of a more ample development. 
We shall, therefore, pursue it through the present section. 

We have shown that the functions of banks were of 
three kinds : First, As institutions of deposit ; Secondly, 
As institutions of discount or loan ; and, Third, As in- 
stitutions of circulation. We shall proceed to consider 
their utility, in each of these three respects. 

1. The utility of banks as institutions of deposit. 

The utility of banks, in this respect, is derived from 
the saving of labor and capital. They save the labor 
of transportation, of counting, and of vigilance. They 
save capital, by enabling the same capital to accomplish 
a greater amount of exchanges. Of the manner in whicb 



UTILITY OF BANKS OF DEPOSIT. 243 

this is done, I do not know that any thing further need 
be said. In so far as this is concerned, all that is ne- 
cessary to be done, is, so to conduct their arrangements 
as to increase their utility in the greatest possible degree. 

In so far as a bank is intended for a place of deposit 
for the circulating medium of any particular community, 
the arrangements which need be attended to will at once 
suggest themselves. For instance, its location should 
be such, as to accommodate the greatest number of its 
customers. Its hours of business should be the same 
as those of the mercantile community. Its affairs should 
be conducted with the greatest possible regularity. Mis- 
takes frequently produce the same effect as fraud, and 
they always present, either to the one party or the other, 
a great temptation to it. The physical and moral secu- 
rity of the institution, should be as great as possible. 
Hence, a banking-house should possess every practica- 
ble security against fire and robbery ; and, if necessary, 
should be always under the protection of a guard. Such 
is the case with the Bank of England. The officers of 
the bank, whether chief or subordinate, should be per- 
sons of tried integrity, and should also be so arranged, in 
respect to each other, that collusion should, if possible, 
be impracticable ; and their whole affairs should be so 
under the inspection of those, whose interest it is to de- 
tect any fraud, that dishonesty might be as difficult as pos- 
sible. The chief officers should be men of property, 
so that their own interests would suffer more than they 
could gain, by any violation of faith. 

The necessity of all these provisions will be at once 
apparent. It is for the interests of the community, as 
well as of the bank, that every one should transact his 
business by means of a bank ; that is, that he should re- 
ceive and pay money through means of its agency. But, 
no one will employ this agency, unless he is certain that 
his money will be appropriated as he directs, and that 
nothing shall be lost, either by carelessness or by dis- 
honesty. 

But banks, as institutions of deposit, are designed also 
to facilitate the payments of money in different places. 



244 UTILITY OF BANKS OF DEPOSIT. 

Thus, if two banks, the one in Boston and the other 
in New York, had perfect confidence in each other's re- 
sources, by drawing upon each other they might be of 
great service to the commercial community. In such a 
case, the Boston merchant who wished to pay a debt in 
New York might pay his money to the bank in Boston, 
and send by mail the draft of that bank in payment of his 
debt. This draft would be paid at sight by the bank in 
New York, and thus the debt would be cancelled. A 
merchant in New York having money to pay in Bos- 
ton, would take the same course, and thus the one draft 
would pay for the other. The same result would be ac- 
complished if the bank at either place purchased drafts 
on individuals known to be solvent, and sent them to the 
bank in the other city for collection. By charging a 
slight percentage for the labor and risk, in addition to 
the regular rate of exchange, as it might happen to exist 
between the two places, the banks would earn a hand- 
some profit and at the same time accommodate their cus- 
tomers. And still further, if two banks were well ac- 
quainted with the resources of each other, and were 
each confident that all the debts of the other would be 
paid, they might give orders on each other, for the facil- 
itating of exchange. Thus if A wished to pay money in 
New York, and a bank in Boston were authorized to 
draw on New York, it might furnish him with a draft 
which would be paid in New York, and receive the dif- 
ference of exchange ; and the same operation being per- 
formed by the bank in New York, each would receive, 
at every transaction, a moderate percentage, and yet 
add greatly to the convenience of the community. 

On this account, I suppose it would be much better, 
to have several banks nearly connected, as the branches 
of a large bank, than to have them isolated, and inde- 
pendent of each other. When banks are, in some meas- 
ure, responsible for each other, they must become ac- 
quainted with the standing of each other, and will, of 
course, be disposed to check each other's excessive 
transactions. Hence, they will also be more likely to 
give to each other every reasonable credit. When, on 



UTILITY OF BANKS OF DISCOUNT. 245 

the contrary, each one is entirely isolated from all the 
rest, and no one bank either knows, or has a right to 
know the condition of the other ; each is naturally fear- 
ful of the solvency of the rest ; and thus, may not be 
willing to afford those facilities of exchange, which the 
transactions of commerce require. Hence, the price of 
exchange is liable to rise unnecessarily high ; and, of 
course, an unnecessary expense is imposed upon the 
trading community. It is by means of its system of 
branches, and the supervision which it thus exerted over 
them, that the late United States Bank was enabled to 
carry on, so extensively, the business of exchange, with 
great profit to itself, and with great benefit to the com- 
munity. Were banks, in general, constructed more 
upon this plan, I think it would greatly facilitate the 
business of exchange. 

While, however, it is granted that banks thus associat- 
ed possess great facilities for conducting the exchanges 
which must be effected between different parts of the 
same country, it is not to be denied that objections may 
be urged against entrusting them with this agency. In- 
asmuch as so powerful a combination would have the 
power of rendering money plenty or scarce at any partic- 
ular time and place, they have it in their power to render 
the rate of exchange high or low at their will. Hence, 
they might monopolize the whole business of exchange, 
and regulate it almost at their pleasure. Were such an 
associated banking power organized, this, therefore, is 
one of the evils which should be guarded against. See 
Raguet on Money and Banking, Book 2d, Chap. 10. 

II. The advantages of banks, as institutions of dis- 
count AND LOAN. 

1 . It may be proper to suggest, at the beginning of 
our remarks on this head, that banks add nothing to the 
capital of a country. Capital has been already defined. 
It is either the material on which industry operates, the 
instruments with which it operates, or the means of sus- 
tentation by which it is supported during the operation. 
The capital of any country, at any one moment, con- 
sists of the amount of these which it then possesses. 
21* 



246 Utility of banks of discount. 

Now, it is evident, that the collecting of this in one 
place, rather than in another ; the loaning of it to one, 
rather than to another ; or the loaning of it, instead of 
not loaning it at all ; or the manufacture of printed or 
of written promises to pay money or any thing else ; can 
never increase the capital, that is, the wealth, or the 
amount of objects of desire, possessed by any country. 
A man is surely no richer, because he verbally promises 
to pay me one hundred dollars ; nor am I any the richer 
for his promise. And, if neither he nor I be the richer, 
I see not who else can be the richer for it. And, if he 
actually lend me one hundred dollars, and I return it at 
the end of the week, if I have used it profitably, the 
capital of the country has taken a different direction 
from that which it would have taken ; that is, it has been 
in my hands instead of being in the hands of some one 
else, but this is all. The capital is the same, except 
that my industry may have added somewhat to it. 
Could a nation, or an individual, become rich by the 
issue of promissory notes, no one, who could write a 
promissory note, ever need be poor. But it is manifest 
that this is not one of the methods by which the capital 
is, in our present state, to be increased. This subject 
is so obvious, that it seems really almost unworthy of 
serious consideration. The above remarks, however, 
have been made, because the contrary notion has been 
so frequently maintained, and even so frequently acted 
upon, to the great detriment of the commercial interests 
of the community. No one, who has the least practical 
acquaintance with the functions of capital and of money, 
can candidly reflect upon the subject for a moment, 
without coming to a correct conclusion. 

2. But whilst it is allowed that banks add nothing to 
the existing capital of a country, it is also true, that they 
are capable of rendering the existing capital much more 
productive. In this manner, the practical result may, to 
some extent, be the same as though they actually in- 
creased the capital of a country. If one -million of 
capital be capable, under ordinary circumstances, of 
producing two hundred thousand dollars of annual rev 



NATURE OF CREDIT. 247 

enue ; and if, by means of any improvement in the man- 
ner of its distribution, it can be made to produce three 
hundred thousand dollars, the annual result is the same as 
if, under the previous circumstances, the capital had been 
increased to a million and a half. And, it is because 
banks have frequently thus increased the productiveness 
of capital, that the notion has arisen, that they increase 
the capital of a country itself. 

The manner in which banks may increase the pro- 
ductiveness of capital, will then be the subject for our 
present consideration. 

Banks increase the productiveness of capital, chiefly, 
by the facilities which they afford for the extension of 
credit. The nature of credit is, however, first to be 
considered. 

" Credit is the term used to express the trust or con- 
fidence placed by one individual in another, when he as- 
signs him money or other property in loan, or without 
stipulating for its immediate payment. The party who 
lends, is said to give credit, and the party who borrows, 
to obtain credit." * 

Banks increase the facility with which those who wish 
"to lend can lend, and those who wish to borrow can bor- 
row. 

That the extension of credit, in every manner which 
can be rendered consistent with the safety of the lender, 
must increase the productiveness of capital, may be seen 
from the following considerations : 

1. It is manifest, that the labor of man, without tools, 
must be, in the smallest degree, productive. What man, 
by the mere labor of his hands, without tools, could 
ever maintain a family, or even maintain himself? With- 
out an axe, he could neither cut nor cleave wood ; with- 
out a hod, he could not even carry mortar. He could 
add but very little to productiveness, and hence, his rev- 
enue must be reduced to the lowest limit. But give 
him tools ; that is, capital ; and the productiveness of 
his labor is at once greatly increased. As he receives 

* McCulloch. 



248 UTILITY OF CREDIT. 

an equitable share of this productiveness, his wealth is 
also increased. Thus, by the use of a small portion of 
capital, both he, and the community ; that is, every in 
dividual, are rendered richer. 

2. But this is not all. A man may have skill and 
instruments, but he may not have the material, on which 
to exert his industry. In this case, his industry and in- 
struments will be useless. Thus, a cabinet-maker may 
possess both skill and tools, but if he have no mahogany 
upon which to labor, all his skill will be of no value. 
If he can procure materials, he can, by a week's labor, 
add very considerably to the total wealth, both of the 
community and of himself. A blacksmith may have 
skill and tools, but if he can procure neither iron nor 
coal, his skill and tools are valueless. Let him possess 
iron and coal, and his industry and skill will not only 
support him, but render the annual revenue of the socie- 
ty much greater. A merchant may have skill in the 
business of exchange, which might be a great saving to 
a whole neighborhood, but if he have no means of pro- 
curing a stock of goods with which to commence ex- 
changes, his skill will add nothing to the wealth of the 
community. Thus, in order for the industry and skill" 
of the community to operate most productively, it must 
be as universally as possible united with capital. 

But, it may be said, let all these operatives labor in 
the employment of those who possess capital, until they 
have acquired sufficient to commence production on their 
own account. This, to a considerable extent, is al- 
ways done ; and, by this means, the productiveness of 
a country is annually increased. It may be proper, 
however, to show in what manner, by a different arrange- 
ment, and a wider dissemination of the benefits of capi- 
tal, productiveness may be more rapidly increased. 

I. *#s to Capitalists. 

1. Were this plan universally adopted, it would oblige 
capitalists either to extend their business beyond their 
wishes, or else to leave many laborers unemployed. If 
a capitalist loaned nothing, he must invest all his annual 
revenue in the business of his own profession. Were 



UTILITY OF CREDIT. 249 

he successful, in this manner, he would, in the course of 
years, be obliged so to enlarge all his means of produc- 
tion, that a great part of his affairs must be managed by 
subordinate agents. 

2. The talent for conducting large transactions, is by 
no means universally possessed. Many men, who are 
capable of superintending an establishment of ten thou- 
sand dollars per year, would be utterly incapable of con- 
ducting one, of one hundred thousand dollars per year. 
And, in general, in proportion to the number of grades 
of agency necessary to the management of any concern, 
the ratio of profit diminishes. 

3. Suppose capitalists always to employ their own 
capital, the burden of every man's business would in- 
crease with his years ; and thus, the older he grew, and, 
of course, the more unfit for business, the more intoler- 
able would the pressure of business become. This is 
unnatural. As a man advances in years, and is less 
adapted to labor, he is disposed to retire from it, and to 
seek for some method in which, without active employ- 
ment, he may reap the advantage of his previous indus- 
try and frugality. 

II. As to Laborers. 

1. A laborer will work with skill and success, just in 
proportion to the personal advantage which he reaps from 
his own labor. Now, every one must perceive, that 
these inducements will operate with more success, when 
he is laboring upon his own capital, and reaping all the 
advantages of his skill, than when he is laboring upon 
the capital of another, and is paid only at a stipulated 
price. A hundred men, each possessing a capital of 
two hundred dollars, allowing each one to select his own 
place for labor, would add much more to the annual 
revenue of a country, than one hundred men, all labor- 
ing in the same place, under an employer, who himself 
owned the whole twenty thousand dollars. 

2. Besides, were capital thus to accumulate, in a few 
hands, it would confine the operations of industry to a 
few places, and thus materially add to the cost of pro- 
duction, and diminish the conveniences of the commu- 



250 UTILITY OF CREDIT. 

nity. Many of the trades require to be conducted very 
near the residence of the consumer. The blacksmith, 
the carpenter, the cabinet-maker, the shoe-maker, the 
baker, and the retail merchant, must reside in the midst 
of the community for whom they labor. Were capital 
always to be employed by those who own it, it would, 
of necessity, be collected into large masses, and the 
consumer would lose a great deal of time in procuring 
the product which he ; needed. The farmer would be 
obliged to go to the city to have his horse shod or his 
plough mended, and thus, the labor of transportation, 
and the consumption of time, would be greatly increased. 
And it must be moreover evident, that inasmuch as the 
extension of credit tends- to afford special advantages to 
the laboring classes, it is peculiarly adapted to the gen- 
ius of a republican government. 

From these reasons, I think it evident that the pro- 
ductiveness of a country must be greatly increased, by 
any means which shall enable the skilful and industrious, 
in any profession, to obtain the use of capital, by means 
of which they may labor on their own account, and, in 
any place which presents the strongest inducements of 
personal interest. They will thus produce more abun- 
dantly, and enrich more rapidly, the country, as well as 
themselves. And, if such arrangements can also be 
made, that those who loan them the capital shall be per- 
fectly secure, it will be a mutual advantage to the capi- 
talist and to the laborer. While the laborer is improving 
his condition, the capitalist is also enjoying, in security, 
the benefit of his former industry ; and thus, without la- 
boring himself, is enjoying all the advantages of labor. 
And, I believe, that arrangements of this kind are com- 
monly found to be more advantageous to a capitalist, 
than a continuance in active business. The general 
opinion of mercantile men, is, I think, that merchants in 
declining years, are more likely to lose, than to gain, by 
continuing in business beyond the period of active en- 
terprise. The last ten years of a life, have frequently 
been destructive of the results of all the labors of the 
forty previous years. 



UTILITY OF BANKS OF DISCOUNT. 251 

The same principles apply to all persons employed in 
labor or trade. And hence we see, in general, that it is 
by means of credit, that those who possess more capital 
than they wish personally to employ, may, without labor, 
derive from it an equitable revenue ; and that those who 
have less capital than they can profitably employ, may 
procure the use of such capital as they wish, and may 
thus be enabled to enjoy the full benefit of their skill and 
industry. It is thus that a poor man, with industry and 
skill, is enabled, at once, to reap all the advantages of 
riches ; and a rich man, whose power of labor is past, 
to reap, to a considerable degree, the advantages of in- 
dustry and skill. The benefit, to both parties, is great 
and mutual. And, it is manifest, that any institution, 
which contributes to accomplish such a result, must be 
of material service to the community. 

Now, banks are such institutions. They stand in an 
intermediate place-, between capitalists and laborers ; and 
enable both to derive advantage from each other. 

They do this, in the following ways : 

I. They collect together capital, which would, other- 
wise, be scattered and useless. 

1. This has been in part illustrated before. The 
greater the difficulties of loaning, the less will always be 
the amount loaned. If he who has a few hundred dol- 
lars to loan, is obliged to wait until some one calls for it, 
it will lie for the greater part of the time idle. And if 
he be obliged to observe the circumstances of a debtor, 
of whom he may know very little, the time and labor 
thus spent will frequently be as valuable as the interest 
he is to receive. Hence, a large amount of capital will 
always remain unproductive; and, consequently, a large 
amount of industry, which might have been rendered 
productive by means of it, will languish. 

2. But this is not all. A large amount of capital is 
always in the possession of widows, minors, and aged 
persons, who are unable to unite with it, that labor which 
is necessary for its productiveness. These persons can 
neither labor with it themselves, nor are they capable of 
superintending the loaning of it, either safely or profita- 



252 UTILITY OF BANKS OF DISCOUNT. 

bly. Hence, the fear of losing all will deter them from 
loaning, and they will hoard it, and live upon the princi- 
pal, until it is all spent, and they are reduced to poverty. 
Thus, the property which might have been useful to 
others, and might have supported themselves without any 
diminution of its amount, is in a few years dissipated ; 
and the gains of a previous life, instead of being added 
to the capital of a succeeding generation, are abstracted 
from it forever. 

3. There is always in every community, a large num- 
ber of persons engaged in active industry, whose gains 
cannot at present, and sometimes cannot at all be invest- 
ed in their employment. Such are laborers, whose gains 
cannot be of service to them, until they have accumu- 
lated a considerable sum. A laboring farmer who saves 
from fifty to one hundred dollars a year, cannot with this 
buy a farm, until he have accumulated the earnings of 
several years. If he can invest these gains as they ac- 
crue, and receive interest for them, they will annually 
add to his stock. If he cannot thus invest them, they 
must lie idle, doing good neither to himself nor to any 
one else. The same is the case with mechanics, and 
various other laborers. 

Besides these, there is a very large class of the com- 
munity whose means of accumulation cannot be increased 
by the addition of capital. The merchant can, by in- 
vesting his annual gains in his stock in trade, increase 
his sales, and, of course, his profits. But how can the 
physician, or the lawyer, or the clergyman, or any per- 
son who is paid by salary do this ? Hence, if there be 
not some means by which these annual gains can be con- 
veniently collected and invested, they will be either fool- 
ishly squandered as fast as they arise, or they will be 
hoarded without any annual profit, either to their owner 
or to the community. 

For these evils, a bank provides the remedy. The 
stock of a bank is all divided into shares, of such amounts 
that they are within the purchase of most persons who 
may wish to invest their capital. These shares are al- 
ways for sale, at a price regulated by the interest which 



UTILITY OF BANKS OF DISCOUNT. 253 

they annually pay. He who has one hundred dollars to 
invest, purchases one hundred dollars' worth of bank 
stock. He receives interest on this one hundred dollars, 
from the day he purchases it, until the day on which 
he sells it again. When he has accumulated any thing 
more, he purchases in like manner. And thus he has 
a safe place of investment for all his gains, where they 
are both held securely and without any trouble to him, 
and where they also pay him an annual revenue. When 
he wishes to withdraw these funds, and to appropriate 
them to some other use, he sells his stock ; that is, some 
one becomes one of the stockholders instead of him- 
self; and he thus receives back the money which he 
formerly paid in. These shares are every day to be 
bought and sold in the market ; and hence, he can gen- 
erally invest or withdraw his money, any day in the year 
at an hour's warning. 

On this account, it will at once be evident, that the 
shares of banks should be of such amount as will best 
accommodate the communities for whose benefit they 
are specially designed. When they are intended for 
capitalists, they may as well be large as small. But 
when they are for the benefit of those who have but 
small amounts to invest at one time, they should be 
small. They will, in this manner, enable persons of 
small means, the more easily to invest ; and, on account 
of this increased convenience, as their stock will be 
more eagerly sought for, it will bear a higher price in 
the market. 

The utility of banks would be still further increased, 
if, besides this mode of investment, they were in the 
habit of receiving small deposits on interest, which 
might remain with them, to be drawn for at the pleasure 
of the owner. Many persons, having small amounts of 
property to invest, are unacquainted with the process 
of buying and selling bank shares, and thus, either 
spend their money thoughtlessly, or allow it to lie idle. 
Were banks to receive all such sums on deposit, and 
allow for them a lower interest than they charge their 
customers, they might thus conduct a profitable business 
22 



254 UTILITY OF BANKS OF DISCOUNT. 

as the loaners of money for the public, and redeem a 
large amount of capital from unproductiveness. This 
is the practice of the banks in Scotland. 

It is true, that this is accomplished, to a considerable 
degree, by savings banks. But these might still be very 
useful by receiving money in smaller sums than those re- 
ceived by the bank, and it might remain with them, until 
it became large enough to invest in a bank of discount. 
Thus both institutions might assist each other ; and the 
bank of discount would have this additional advantage, 
that it could allow of the withdrawal of money on de- 
mand, which a savings bank cannot always readily do. 

In this manner, banks collect together the scattered 
and useless portions of capital, and place it in a form in 
which it may be conveniently used ; and they also col- 
lect together that which would, perhaps, be used, but 
which, without their assistance, would be used in a much 
less convenient manner, both to the borrower and the 
lender. 

II. Let us now see in what manner, after this capital 
has been thus collected, banks enable the industrious 
classes to enjoy the benefit of it. 

The most obvious method in which, without banks, 
the capitalist would assist the laborer, would be to sell 
him goods on credit. Thus, suppose a mechanic wished 
to establish himself in a village where his services would 
command a high remuneration ; he might purchase of 
the dealer in the material which he wanted, as much 
stock as he wished, at three or six months, or a year's 
credit ; and, with this capital, he could commence his 
business. By converting this material into product, and 
selling it, he would be able to liquidate the debt ; and all 
the surplus would be his own. Or, take the case of a 
wholesale merchant. Suppose such a merchant to im- 
port into a large city, two hundred thousand dollars' 
worth of goods. If he shall wait for the individuals 
who may need his wares, to come and purchase them, 
it may be a year or two before his sales are completed. 
There may, however, be fifty retail merchants, of small 
capital, in the surrounding towns, who are not able to 



UTILITY OF BANKS OF DISCOUNT. 255 

pay in cash for his commodities, but who, if they can 
obtain them on credit, will be able, both to sell them to 
good advantage to themselves, and also to refund the 
money in three or six months. It will be of advantage 
to both parties, the one to sell, and the other to buy on 
credit. And this is the manner in which very much of 
this business is commonly transacted. 

The natural limit to this accommodation is, however, 
the pecuniary ability of the merchant. Were there no 
means of borrowing, he could grant but little facility in 
this manner. Just in proportion as he were enabled to 
use the capital of others, could he grant the use of cap- 
ital to those, whose only possession was their labor and 
skill. Thus, goods could be purchased to but a small 
amount on credit, were not the wholesale merchant able 
to avail himself of the capital, which, from the various 
sources that we have mentioned, is accumulated in banks. 
Under these circumstances, in times of ordinary caution, 
there would be a large class of industrious men whose 
enterprise would be greatly crippled from the want of 
capital. 

But again, suppose that a retail merchant or mechanic 
can purchase on credit, it is frequently better for him to 
borrow of a bank in his own neighborhood, than to pur- 
chase on credit at a distance from home. 

1. If his character be good, the bank, in the neigh- 
borhood where he is known, will lend to him at a lower 
rate than the merchant in the city where he is not known. 
I speak of the merchant's lending to him, because, to 
furnish him capital on credit, is to lend to him that 
amount of capital. The merchant always so considers it, 
and hence he always has his cash and his credit prices. 

2. To borrow in this manner is clearly of advantage 
to the town in which he resides. He in this manner 
brings into profitable use capital which would otherwise 
have been idle ; and the very manner in which he uses 
it enables him to sell at a cheaper rate to those of whom 
he has borrowed it. 

It is in this manner, therefore, that banks quicken the 
industry of a people. They first collect together, and 



256 UTILITY OF BANKS OF DISCOUNT. 

render available, all the capital of a country ; and they 
so use it, that every one who needs it, and can give the 
requisite assurance that it will be well used, can obtain 
it. They thus, by giving facilities to the extension of 
credit, enable every individual to reap all the benefits 
which can arise from his industry, his skill, and his 
moral character. Without credit, if he possessed no 
capital, he would be left to the resources of his simple 
industry, or simple manual labor. In just so far, there- 
fore, as banks tend to the extension of this kind of 
credit, they confer a benefit upon the industrious. 
Thus, every one may have the opportunity, so far as the 
capital of the country will allow, to unite his industry 
with capital, and reap the resulting advantage ; and, on 
the other hand, all the capital of the country is enabled 
to be united with industry, and thus it is all employed, 
in some way, in the business of production. The nearer 
any community approaches to such a state of things as 
this, the more intense will be its industry, and the 
greater its productiveness. 

So far as banks confine themselves within these limits, 
they are advantages to the community. It is, however, 
but too manifest, that they may be greatly perverted 
from these their legitimate objects. Thus, instead of 
lending to the industrious producer of small means, they 
may lend to the wealthy capitalist at the ordinary rate 
of interest, that he may loan to the producer at exorbi- 
tant interest. Instead of benefiting the producer, they 
thus allow themselves to be used as the instruments for 
fleecing him. Or again, they may lend to capitalists for 
the purposes of speculation ; thus enabling them to raise 
to whatever amount they please, the price of the most 
important necessaries of life. Or still further, the banks 
themselves may become purchasers, and may buy up, 
on their own account, the most valuable staple of a 
country, for the sake, as in the preceding case, of deriv- 
ing enormous profits by the monopoly. When banks 
in consequence of such transactions become embar- 
rassed, their resort is to a suspension of specie pay- 
ments. They are thus enabled to keep up the price of 



UTILITY OF BANKS OF DISCOUNT. 257 

whatever they have to sell, and to pay off their debts in 
depreciated currency. And what is strange, they, not 
unfrequently, persuade the community, that this course 
is taken entirely for the public good. Such conduct 
should always without fail work the forfeiture of the 
charter of a bank, whatever might be the consequences. 
When banks transact their business in this manner, they 
become a nuisance. By sudden expansions and contrac- 
tions of the currency, they embarrass and empoverish 
the industrious dealer and enrich the money lender, the 
bonds of duty in the meantime are sadly relaxed, and 
the moral principles of the mercantile community suffer 
a frightful deterioration. 

And still more. As banks are permanent corpora- 
tions, of which the laws and resources are known, they 
present an inducement for the investment of foreign 
capital. This is always an advantage to any country, 
provided the capital be profitably employed and not 
squandered in useless investments. Capital will never 
be invested, in any country, unless the rate of interest 
in the country where it is invested, is higher than in that 
from which it is sent. In this case, the former country 
derives the advantage from the difference. H money 
can be borrowed in London, at four per cent., and be 
used here, at ten per cent., we have the benefit of the 
use of the money, and of six per cent., in addition. In 
this manner, money is constantly borrowed by a new 
country from an old, with great advantage to both, but 
specially to the new country. 

If such be the utility of banks, in this point of view, 
it is of importance that their arrangements should be so 
made, as to loan, on the most convenient terms, to those 
who are able to give proper security. The mode, in 
this country, is by receiving a note of hand, with approv- 
ed endorsers, and made payable at a specified time, say 
at sixty or ninety days. The bank, however, allows no 
interest on deposits made by the drawer of the note. 
This mode of transacting business, answers a very val- 
uable purpose ; but, it may be questioned, whether its 
convenience might not be very considerably increased. 
22* 



258 UTILITY OF BANKS OF DISCOUNT. 

Judging by these principles, it would seem that the 
Scottish banks were conducted more correctly, as well 
as more beneficially to the public, than any institutions 
of the kind at present known. 

1 . As offices of deposit, they receive all sums, not less 
than J£10 sterling; and, for such deposits, allow inter- 
est. Less sums than this are placed in the savings 
banks, until they become sufficiently large to be deposit- 
ed in a bank. These deposits are, generally, made by 
persons who labor in agriculture or manufactures. The 
whole amount thus deposited, is equal to about twenty- 
four million pounds sterling, or not far short of one 
hundred and twenty million dollars. This large sum is 
thus redeemed from idleness, and added to the produc- 
tive capital of the country. 

2. They discount notes, as our banks do, but they 
have another mode of loaning, which is called cash 
credits. 

When a man wishes a cash credit, he finds a bonds- 
man, who promises to indemnify the bank for all that it 
may lose, by loaning to him within a certain sum ; or 
else he places real estate in the power of the bank, to a 
sufficient amount to render it secure within the sum 
which he wishes to borrow. The bank then opens with 
him a cash account, or allows him to draw for any sum 
within the specified amount. He is charged interest 
only for the amount which he borrows. As last as he is 
in funds, he deposits all he can spare, in the bank, and 
for every thing thus deposited, he is allowed interest ; so 
that his interest on deposits always diminishes the inter- 
est on his debt. Thus he borrows and pays, succes- 
sively ; and, at stated seasons, the accounts are ad- 
justed, t 

The advantages of this system, are : 1st. That it 
enables an industrious man to procure credit to the 
amount of his real estate, and, hence, to do more busi- 
ness with the same capital, than anywhere else. 2d. 
That by rendering every deposit valuable, it stimulates 
him to frugality. 3d. It enables the bank to understand, 
more correctly, the state of his affairs, and, hence, to 



UTILITY OF BANKS OF CIRCULATION. 259 

know how deserving he is of confidence. 4th. That 
this may be done with greater safety, than in any other 
mode, is evident from the fact, that while the Scottish 
banks have been liberal in their accommodations, and 
have, by the acknowledgment of all, been of the most 
important service to that country, only one of them has 
ever been_ known to fail. These are, surely, the best 
evidences of the wisdom of any practical system. 

Such, I suppose, to be the advantages of banks, as in- 
stitutions of discount or loan. 

III. On the utility of Banks, as institutions of cir- 
culation. 

I have already shown, in what manner it is possible 
for banks to issue notes for a larger amount than they at 
any moment actually possess in specie, and that they 
may do so, to a certain extent, with entire safety to the 
community. Should banks be generally established, 
and all of them adopt this system, as they would natu- 
rally do, it is evident that there would be in circulation, 
more paper than specie ; that is, that the actual circula- 
tion would, to a great extent, become paper, instead of 
the precious metals. 

But I have -already shown, that a community, in any 
given condition of exchanges, requires no more than a 
given value of the circulating medium, for its exchanges. 
If the amount be increased, its value will diminish, and 
vice versa. If it need an amount equal to a million bush- 
els of wheat, no more than this can be employed, and if 
more be introduced, its value will fall, till it become 
equal to a million bushels of wheat. 

Now, by issuing paper money, the whole amount of 
money is increased, and, hence, its price falls. But, as 
every paper dollar is redeemable in silver, its value is 
still equal to that of a silver dollar. Hence, the whole 
amount of currency, silver and paper together, fails in 
price, so that money becomes cheap, and you can buy 
more abroad with a silver dollar, than you can buy with 
a silver dollar, at home. Now, in this state of things, 
if the paper and coin were equally valuable in foreign 
countries, either would be exported, at pleasure. But, 



260 UTILITY OF BANKS OF CIRCULATION. 

inasmuch as only the metal is valuable abroad, this, ex- 
clusively x is sent out of the country, in the purchase of 
other articles. And, it will be sent out, until the price 
of the circulating medium at home, is reduced to its or- 
dinary price in other countries. 

Suppose that two thirds could be thus sent away with- 
out impairing the soundness of the currency at home. 
Business would then go on as securely, and as well, as 
it did before. But, these two thirds would procure in 
exchange an equal amount of other capital, by which the 
wealth of the country is by so much increased. In the 
mean time, all the exchanges of the country are carried 
on by means of the remaining one third, plus the ex- 
pense of the manufacture and management of the cheaper 
commodity, paper ; that is, the given operation, ex- 
change, is carried on by means of an instrument, which 
costs only about one third of the expense, which the 
former instrument cost. 

This, then, is the advantage of banks of circulation. 
They furnish to the community a cheaper article of ex- 
change. And the extent of the benefit is easily estimat- 
ed. U the ivhole of the metallic circulating medium 
were exchanged for paper, we should have the benefit 
of the interest of this ivhole amount. If twenty millions 
of specie were wanted to carry on the exchanges of this 
country, and the whole were exchanged for paper, we 
should be benefited to the amount of the annual interest 
of twenty millions, or, at six per cent., of one million 
two hundred thousand dollars per annum. If three 
fourths of it were sent away, our benefit would be equal 
to nine hundred thousand dollars per annum. This is 
the ivhole pecuniary advantage of a paper currency, over 
a metallic. It consists in substituting a cheaper for a 
dearer circulating medium. And, our annual advantage, 
supposing the cheaper to be equally good, is precisely 
equal to the interest of the difference. 

This deserves to be seriously considered. Banks do 
not create capital. The issuing of paper money, does 
not render money abundant. If it be issued to such an 
extent, that its soundness is doubted, it produces an ef- 



PAPER AND SPECIE CIRCULATION. 261 

feet precisely the reverse. If, while it is perfectly 
sound, it be issued to an amount beyond the wants of the 
community, specie will be exported, until the equilibrium 
is restored. If but twenty millions of value be needed 
in exchange, you can employ but the value of twenty 
millions. The only benefit of a paper currency, sup- 
posing it to be perfectly sound, over a metallic currency, 
is first, its greater convenience in exchange ; and, sec- 
ondly, that it enables us to use a cheaper instrument in- 
stead of a dearer, and to employ the amount of the dif- 
ference in the various operations of human industry. 



SECTION III. 

ADVANTAGES AND DISADVANTAGES OF A PAPER 
CIRCULATION. 

Having thus endeavored to illustrate the nature of a 
paper circulation, it may be of some importance to ex- 
plain, in as simple a form as possible, the advantages and 
disadvantages which appertain to it. 

1. The advantages of a paper circulation. These are 
two, economy and convenience 

I. Economy. 

1. The material in use, in a paper circulation, as we 
have shown, is of much less value than that in a specie 
circulation. A bill worth one thousand ounces of silver, 
may not cost more than two or three cents. Now, in 
just so far as a paper circulation accomplishes the same 
result as specie, and accomplishes it at a less price, the 
community is the gainer by the difference. 

2. The wear and tear of paper money, as well as the 
original cost, is less expensive than that of silver and 
gold. Were silver and gold transported, as paper mon- 
ey now is, the friction would reduce the weight of coin 
so rapidly, that new emissions would be much more 
frequently necessary. 



262 PAPER AND SPECIE CIRCULATION. 

3. But, specially, as the introduction of paper money 
renders a considerable part of the specie formerly em- 
ployed, useless, it may be exchanged for other capital. 
Specie is, in itself, incapable of production. If a part 
of it will answer the purposes of exchange, all the re- 
mainder may be changed for productive capital. Hence, 
the gain, as has been shown in the preceding section, is 
equal to the amount of this difference employed in pro- 
ductive, and the same amount employed in unproductive 
capital. If five millions can be, without injury, dis- 
pensed with, the benefit is equal to the difference be- 
tween five millions in productive and five millions in un- 
productive capital. 

II. Convenience. 

1. Paper money is much more easily transported. 
To travellers, and men in the ordinary affairs of life, 
this- is a matter of considerable consequence. Specie 
is heavy and burdensome. Any amount of paper money 
which a man needs, may be comprised in as small a bulk 
as he chooses. When large transfers of money are to 
be made between distant places, the additional conven- 
ience and security are still more evident. 

2. Paper money is less liable to robbery. As we 
can render its bulk whatever we please, it can be more 
readily concealed, if we doubt the honesty of our asso- 
ciates. Specie is heavy, bulky, and noisy, and, hence, 
its presence is unavoidably discovered. 

3. Paper money, if stolen, is more easily identified, 
and, hence, more easily recovered. A man, by noting 
the number and marks of a bank bill, may safely swear 
to its identity ;'but, inasmuch as coin is intentionally all 
alike, this would be impossible in the case of specie.* 

These are the principal advantages, so far as I can 
see, of a paper currency. If there be any others, I 
have not been able to discover them. 

On the other hand, its disadvantages are three, viz : 
Its liability to forgery, to fraud, and to fluctuation. 

* The inconveniences here spoken of, apply chiefly to silver. Gold 
represents so large a value that in any moderate amount it may be, 
without difficulty, transported. 



PAPER AND SPECIE CIRCULATION. 263 

I. It is liable to forgery. The risk, in this respect, 
from the use of bank paper, is considerable. The se- 
curity from signatures is small, since good penmen, by 
practice, can easily learn to imitate any signature. The 
principal security arises from the quality of the engraving 
and of the paper. But, as any one, who can engrave 
sufficiently well, can so engrave a false bill, that no ordi- 
nary examiner can distinguish it from a true one ; every 
man is liable to oe imposed upon, and to suffer a total 
loss, to the exact amount of the imposition. It is true, 
that coin is also liable to be falsified ; but, the process is 
much more difficult and expensive than that of engrav- 
ing. False coin, being liable to detection from its color, 
weight, and sonorousness, is more readily detected. In- 
asmuch, therefore, as the liability to counterfeiting, is 
greater in paper money than in specie, this difference is 
to be set down in the list of the disadvantages with which 
it is chargeable. 

On this account, banks which issue paper money, are 
under obligations to take every precaution to render their 
bills as little liable to be counterfeited, as possible. The 
greatest security, as we have remarked, is in the excel- 
lence of the engraving, and in the peculiarity of the pa- 
per. Hence, they should employ, for the engraving of 
their bills, none but the best artists ; and thus employ 
talent, which would be under no temptation to engage in 
counterfeiting. They should never use plates which 
have been so much worn, as to render the impression 
coarse, indistinct, and easily imitated. A bank which, 
to save expense, uses a worn-out plate, enriches itself, at 
the expense of the public. I see no reason why a bank, 
which issues bills of this description, and thus takes no 
pains to secure the public against fraud, should not be 
liable to pay the false, as well as the true bills. Were 
this done, more care would be used, and counterfeiting 
would become far less common. 

II. Fraud. I have elsewhere shown, that if the 
capital of a bank be all paid in, and the notes which it 
holds against individuals, and which it has received in 
exchange for its bills, be all good, the holder of its bills 



264 PAPER AND SPECIE CIRCULATION. 

has two perfectly good securities. Were all the capital 
stolen, he would be safe ; and, were all the notes bad, 
the capital remaining, he would still be safe. We have 
also shown, that he would always be safe, so long as the 
capital actually paid in, was sufficient to cover any defi- 
ciency which might arise from a failure of the debtors 
of the bank. And in the worst event, supposing no 
loans to be made for a longer period than 60 days, the 
holder of the bill could not be obliged to wait at furthest 
longer than that time. And, with ordinary skill and fidel- 
ity, it is manifest, that the issues of a bank may always 
be kept within this limit, and thus the holder of its bills 
incur no risk. 

But neither the skill nor the fidelity of man is always 
to be trusted. Hence, banks frequently fail, and in- 
flict either a partial or a total loss upon the community. 

1. Banks may fraudulently commence issues, when 
only a parts, or when not even any part, of their capital 
has been paid in. Suppose that only a part of their cap- 
ital be paid in; then the public, instead of having a guar- 
antee equal to the whole amount of its capital, over and 
above the notes of individuals held by the bank, has a 
guarantee equal only to the amount of the part paid in. 
If the capital of a bank be one hundred thousand dollars, 
and only ten thousand dollars be paid in, and the bank 
issue one hundred and fifty thousand dollars in bills, it 
possesses only a guarantee of ten thousand dollars, to 
ensure the payment of one hundred and fifty thousand 
dollars by the debtors of the bank. Upon the least 
commercial pressure, or in case of loss by accident or 
robbery, such a bank must fail, and the holders of the 
bills must suffer a loss equal to the deficiency by the 
failure of the debtors of the bank, the costs of closing its 
concerns, and the loss of interest until its bills have been 
paid. 

Again : Suppose that none of the capital stock were 
paid in, but that the stockholders simply gave their 
notes for their shares. The security would then be 
precisely equal to the average goodness of the notes of 
individuals received by the bank, in exchange for its 



PAPER AND SPECIE CIRCULATION. 265 

bills. It would have no capital on hand to redeem 
these bills, and, on the least pressure for specie pay- 
ments, it must fail. The notes of individuals in a time 
of scarcity of money would be worth much less than par; 
and, as the stockholders would pay for their notes which 
they gave for shares, by surrendering up the shares for 
which they gave them, the whole loss would fall on the 
holders of the bills. 

Again : Suppose that, as in the last case, no stock 
were paid in ; that the stockholders were the directors 
themselves, and that they accommodated themselves 
with money without ever requiring notes of each other. 
Here, there would be no -security whatever, either in 
bank capital, or in the notes of individuals. In such case, 
the bank must speedily stop payment, and the whole 
loss of its issues would fall upon the holders of its bills. 
This, as well as the last case, is nothing more than a 
fraudulent arrangement for picking the pockets of the 
public, on an extensive scale. It is nothing more nor 
less, than downright swindling, and should expose a man 
to the same punishment as house breaking. 

Nor is this danger merely imaginary. The amount 
lost by the public from the failure of banks is actually 
enormous. Mr. Gallatin, a most able and competent 
authority on this subject, in his pamphlet on the curren- 
cy, has made the following statement, which, from the 
character and accuracy of the author, is entitled to full 
credit. 

" We have an account of one hundred and sixty-five 
banks which have failed between the first of January, 
1811, and the first of July, 1830. The capital of one 
hundred and twenty-nine of them, amounted to more 
than twenty-four millions of dollars, stated as having 
been paid in. The whole amount may be estimated at 
nearly thirty millions, and our list may not be complete. 
The capital of the State banks now existing, amounts to 
about one hundred and ten millions. On a total capital 
of one hundred and forty millions, the failures have 
amounted to thirty, or more than one fifth of the whole. 
Of the actual loss incurred, we can give no account. 
23 



266 PAPER AND SPECIE CIRCULATION. 

There are instances in which the stockholders, by paying 
for their shares in their own notes, and afterwards re- 
deeming their notes with the stock in their name, suffered 
no loss, and this loss fell exclusively on the holders of 
notes, and the depositors. In many cases, when the 
whole stock has been lost, the holders of notes, never- 
theless, suffered a partial loss. In the most favorable 
cases, the stockholders lost a considerable portion of the 
stock, and all the debts will be ultimately paid. But 
even here, there has been a heavy loss to the communi- 
ty, the notes having been generally sold by the holders 
at depreciated rates, when the failure took place. We 
believe that the pecuniary loss sustained by government, 
on loans raised during the suspension of specie pay- 
ments, and from bank failures, exceeded four millions 
of dollars."* 

Now, when a currency is liable to such results, from 
fraud or folly, that is, when skill and integrity must enter 
as an element into its goodness, the risk which a commu- 
nity sustains in the use of it, must certainly be placed in 
the list of its disadvantages. 

Nor are these evils peculiar to this country. In Eng- 
land, in the year 1793, as we are informed by McCul- 
loch, one third of the country banks stopped payment. 
And we learn by the daily newspapers, that the failures 
of private bankers are matters of very frequent occur- 
rence. Between the years 1809 and 1830, the number 
of commissions of bankruptcy, issued against country 
bankers in England, was three hundred and eleven. 

* Since the above was written, the " United States Bank of Penn- 
sylvania" has failed, and its shares, of the par value of 100 dollars, 
and which cost the present holders, in many cases, 120 dollars, are 
selling 1 at the nominal price of 5 or 6 dollars. They are, in fact, con- 
sidered worthless, and the bills of the bank are selling at 60 cents for 
the dollar. Thus, the whole capital of this institution, 35 millions 
of dollars, has in two or three years vanished, and I fear that neither 
6eer, nor prophet, nor jury will ever tell us where it has gone. And 
this mismanagement or fraud was committed by men who were cel- 
ebrated as models of finance, ability, and disinterested patriotism, 
and in a city proud of its mercantile "faith. It is surely not remarka- 
ble if, with such facts recent in their recollection, there should arise, 
in the minds of the people, a serious distrust of banks. 



PAPER AND SPECIE CIRCULATION. 267 

" Exclusive of the above, many banks stopped payment, 
to the great injury of their creditors and the public, 
which afterwards resumed them; while the affairs of 
some bankrupt concerns were arranged without a com- 
mission." Yet, it would seem, there are means which 
may be devised to remedy this evil; for he informs us 
that, "during this whole period, not a single Scottish 
bank gave way." 

III. Fluctuation. In speaking of a metallic curren- 
cy, we had occasion to remark, that it was essential to 
the character of whatever was used as money, that it 
be liable, as little as possible, to fluctuation. Hence, 
vegetable products, of which the amount created was 
liable to vary under the same amount of labor, with the 
different productiveness of seasons, could never be em- 
ployed as money. The reason is obvious. He who 
contracted debts, when money bore one ratio to prod- 
ucts, would pay them when it bore another ratio; and 
hence, though he might pay the same nominal amount, 
yet he might pay twice as much in value as he had 
promised. So, also, he who had loaned money while 
it bore one ratio, and received his payments while it was 
at another, though he might receive the same nominal 
amount, might not receive half the amount in value 
which he loaned. And hence, all civilized communi- 
ties have denied to governments the right of altering, or 
in any manner interfering with, the value of coin ; for the 
reason that this cannot be effected without causing a 
variation in the value of money, and thus interfering 
with private contracts. Were this allowable, is is evi- 
dent that credit must be at an end ; because, whatever 
a contract might mean to-day, no one could possibly 
predict what it would mean to-morrow. Hence, all 
fluctuation in the value of any substance, renders it, by 
the amount of this fluctuation, unfit for the purposes of 
a circulating medium. If gold and silver were as fluc- 
tuating in value as cotton or wheat, they would, their 
bulk only excepted, be as unfit for the purposes of mon- 
ey, as these substances themselves. 

Now, these remarks apply, not only to gold and sil- 



268 PAPER AND SPECIE CIRCULATION. 

ver, but to any thing which may be used as money 
They apply to silver, as much as to gold, and to gold, 
as much as to silver. If either of these substances were 
liable to great fluctuations in value, we should be oblig- 
ed to abandon it, and to take the other. If both of them 
were so liable, we should relinquish them both, and find 
a better substance. And, if paper be used as the circu- 
lating medium, the case is the same. By as much as it 
is liable to sudden or to great fluctuation, by so much is 
it unfit for the purposes of money. And, when once 
paper has supplied the place of gold and silver, it be- 
comes the circulating medium as truly as gold and silver 
were, when they supplied the place of copper, or sheep, 
or cattle. 

Now, the disadvantage to which, as we have said, 
paper money is exposed, is, that it is liable to sudden 
and great fluctuations in value. 

The manner in which this occurs, is easily explained. 

We have already shown that, in order to accomplish 
a given amount of exchanges in a community, a certain 
amount of value is necessary ; and that no more than 
this amount of value can be employed for this purpose. 
If, to accomplish the exchanges of a community at a 
given time, one thousand ounces of silver, equal to one 
thousand bushels of wheat, are necessary, and twice this 
quantity be introduced, the value will remain the same, 
though the quantity varies ; and the result will be, that 
the price of money, in relation to other products, will 
fall one half ; that is, if we gave five dollars for a hat 
before, we shall give ten dollars now, and for other 
things in proportion. And, if half the quantity were 
removed, the reverse would be the case ; that is, the 
price of money would be doubled ; in other words, if 
we gave five dollars for a hat, formerly, we should give 
two dollars and fiftv cents for it now ; and so of other 
productions. 

If we bear this principle in mind, we shall easily see 
the nature of the fluctuations to which paper money is 
liable. Metallic money has a natural price, which is 
not liable to any fluctuation within short periods. This 



PAPER AND SPECIE CIRCULATION. 269 

price depends upon the cost of mining, which is liable 
to very little variation. He who exchanges a thousand 
bushels of wheat for a thousand ounces of silver, knows 
that it will cost as much to bring an ounce of silver into 
the market, six months hence, as it does now, and 
hence, its cost being the same, it will bring for him as 
much of other products, six months hence, as it does 
now ; that is, if this be the sole medium of exchange, and 
its value be not interfered with by the use of some other 
substance. Now, paper money has no such natural 
price ; but the quantity of it in circulation depends, con- 
siderably, upon the hopes, wishes, and anticipations of 
men. Hence, the quantity may vary in almost any 
amount, and, as the value of the whole is not altered by 
the quantity in use, as the quantity increases, the value of 
each portion must decrease ; and, hence, a paper dollar 
may be worth twenty-five per cent, more or less to-day, 
than it was a month ago, or than it will be a month to 
come. Though there may be the same words written 
upon the paper, and it be called by the same name, yet 
it means, to him who pays it, and to him who receives 
it, a verv different thing from what it did a month ago. 
He bought, three months ago, a thousand barrels of 
flour, at ten dollars a barrel, at three months credit. 
Without any change in the supply or demand for flour, 
he is not now able to sell it for more than seven dollars 
a barrel, while his notes for ten thousand dollars must 
be paid in full. 

This fluctuation may arise, on the part of the, bank, 
innocently or viciously ; from want of skill and fore- 
thought, or from want of integrity. 

I. Innocently.. Suppose that, at a given period, the 
circulating medium in a community is properly propor- 
tioned to the necessities of exchange, and that this me- 
dium, though paper, is perfectly sound ; that is, that 
there exists, in all the banks, sufficient specie to pay all 
debts of the bank, on demand, in the precious metals. 

Let, now, from any cause whatever, the productive- 
ness of labor be greatly increased, so that a much larger 
amount of annual products is brought into market. If the 
23* 



270 PAPER AND SPECIE CIRCULATION. 

amount of money remain the same, while the amount of 
products is increased, the price of money will rise ; thai 
is, every thing will be cheap. As soon as products 
become cheap, every one is anxious to buy. Merchants 
will be desirous to borrow money, with which to buy, 
because, when products are cheap, it may be reasonably 
expected that the price will rise ; and, if the rise in 
price be greater than the interest paid for money, the 
purchaser may reasonably hope to be able to repay what 
he borrowed, with interest, and yet realize a handsome 
profit. Besides, when an article is low in any country, 
then is the time to export it with advantage ; and this 
prospect of increased advantage will induce men to bor- 
row, in order to export, in the expectation that the usual 
profit will enable them to realize far more than the inter- 
est they have paid for borrowed capital. In such a sea- 
son, every one is desirous of borrowing, and banks can 
most profitably employ their capital. They are called 
upon to loan, to the utmost extent of their power, both 
by their own interest, and by the universal wish of the 
public. 

Now, in such a state of things, it is not to be sup- 
posed that the directors of the banks are endowed with 
greater prudence than other men, or that they are not. as 
likely to be influenced by the hope of large dividends. 
The example of one stimulates the others. The risk 
that one institution runs, another will be willing to run. 
A bank will scarcely be willing to make a dividend of 
six per cent., while its neighbor is making eight. And 
when disconnected banks, all over a nation, are animated 
by these principles, it is evident that a very large amount 
of loans must be effected ; that is, a very large amount 
of paper money must be issued. For the same reason, 
at such a time, a great number of additional banks will 
be incorporated, and all will be watched over with less 
than usual vigilance. But just so fast as, beyond the 
necessary amount, the quantity is increased, the value 
of each portion of it diminishes, and thus prices rise ; 
that is, money becomes abundant, and a dollar will pur- 



PAPER AND SPECIE CIRCULATION. 271 

chase no more than it would in a time of scarcity. 
Thus, the amount of the circulating medium becomes 
too great for the amount of exchanges, and money is 
cheaper than any other article in the market. 

But, we have before seen, that the cheapest article in 
the market will always be exported. As this is now 
money, money will be exported. But, as the bills are 
redeemable in specie, specie is worth no more than 
bank bills ; and, as the bills are worth nothing abroad, 
the whole exportation will be in coin. In a short time, a 
large portion of it has left the country. The banks then 
find themselves liable to pay in specie, a vastly greater 
amount than they were liable to pay, a month or two 
since, and they find that they have much less specie 
wherewith to pay it ; and the demand for specie still 
continues. They are, of course, in danger of stopping 
payment, and their only means of safety is, in diminish- 
ing their loans ; that is, loaning no more, and requiring 
payment of those who owe them. Hence, those who 
had borrowed, with the hope of paying by means of 
their sales, are called upon to pay, before these sales 
are effected, and, as the banks refuse to loan, very few 
are disposed to buy. Thus, the debtors of the bank 
are required to pay their debts sooner than they ex- 
pected, and the means of making those payments are 
curtailed. The money goes back into the bank, and 
does not come out of it. Thus, with every day, the 
quantity of the circulating medium is diminished. The 
scarcity of money increases. The price of goods falls, 
as men will sell for lower and lower prices, rather than 
lose their credit. Every man, from necessity, -presses 
his neighbor, and the bank, from the same necessity, 
presses them all. And thus, in a few months, the 
amount of circulating medium is greatly diminished ; and 
money is worth twenty-five or fifty per cent, more than 
it was a short time ago. He who agreed to pay one 
thousand ounces of silver, when one ounce of silver was 
worth a bushel of wheat, pays it now, when it is worth 
a bushel and a half of wheat ; that is, though he pay the 



272 PAPER AND SPECIE CIRCULATION. 

same nominal amount, he pays fifty per cent, more in 
value.* 

The result of such a state of things depends, of 
course, upon the degree of the excess of these issues. 
If this excess have not been great, by means of mutual 
forbearance, the scarcity passes away ; that is, holders 
of produce, being obliged to sell or to fail, sell at re- 
duced prices. Thus, the price of money rises, and it 
becomes profitable, to import it. It is then imported ; 
the banks are thus enabled to discount ; and things go 
on again, as usual ; with, however, a severe loss if not 
total ruin to those who have purchased when goods were 
at high prices. 

But, it is not always thus. Sometimes the pressure 
for money is so great, that those who have purchased 
products with borrowed capital, cannot sell them fast 
enough to make their payments. These are obliged to 
stop payments, or become bankrupts, and assign their 
effects to their creditors. But these were debtors to 
many others, who were depending on the payment to be 
received from them, to pay their own debts. These, 
being disappointed in this expectation, also fail. Their 
failure leads again to the failure of others, and the panic 
becomes general. No one dares to trust his neighbor, 
and the banks dare not trust any one. An universal 
crash of mercantile credit succeeds, and none are able 
to withstand the shock, save those of the heaviest capi- 
tal, and of the greatest financial ability. 

This, however, at length works its own cure. When 
a debtor fails, he assigns his property to his creditors ; 
that is, he pays them in kind, instead of in money. 
Hence, this being done, his need of money is over, and, 
by so much, diminishes the demand. His property is 
sold, at any price it will bring. This depresses, still 
more rapidly, the price of goods ; that is, raises the 
comparative value of money ; and hence, it will be the 
more readily imported. As soon as these causes have 

*Tlie banks in the city of New York alone, within a few months 
lately, reduced their circulation to the amount of more than twelve 
millions of dollars. 



PAPER AND SPECIE CIRCULATION. 273 

had time to operate ; that is, diminished demand and 
increased supply ; the equilibrium is restored, and credit 
is established on its ordinary basis. 

The method which has been sometimes resorted to, 
when banks have either viciously or innocently become 
unable to pay their bills, is to suspend specie payments, 
and then prevail upon the State legislatures to pass laws 
exempting them from the consequences of their failure. 
This expedient has been resorted to, for the second time 
within two years, by a great part of the banks in the 
United States. Although excuses may be rendered for 
such a course, under a universal and unexpected calam- 
ity, there can be no doubt that the bank suspensions 
must work the direst mischief to the community. With- 
out going into the subject in detail, the following consid- 
erations are sufficient to show the nature and tendencies 
of such a measure. 

1. The obligations of a bank are as binding as those 
of an individual. There is no reason why it should be 
exonerated from them more than an individual. If a 
merchant fail to pay his note to the bank, his credit is 
dishonored and he is expected to pay interest from the 
time of his failure. There can be no reason why a bank 
should not abide by the rule which it enforces upon 
others. 

2. The only circumstance which giv«s any value to 
the bills of a bank is the assurance that they will be paid 
in specie. But if the bank is allowed, at will, to ab- 
solve itself from this obligation, what is this assurance 
worth. This very power conceded to banks would 
render a paper currency worthless. 

3. The only restriction upon unlimited issues of pa- 
per money is the obligation imposed upon banks to re- 
deem their bills at sight in specie. So long as this is 
enforced, the currency could not readily become inju- 
riously expanded. If it be not enforced, or if the bank 
may be easily sheltered from the results of its impru- 
dence, a paper currency may be expanded illimitably. 
In this manner, as in the case of the continental money, 
the circulating medium may be rendered good for nothing. 



274 PAPER AND SPECIE CIRCULATION. 

4. The tendency of frequent suspensions must be to 
drive all the specie out of the country. In consequence 
of over issues, prices will be kept so much above those 
of other countries, that products cannot be profitably 
exported, and specie will immediately take its place. 
Thus, as soon as banks resume the payment of their 
debts, prices being high, they will be again compelled to 
suspend, and thus a few such examples would end in a 
small number of spasmodic contractions and suspensions, 
to be followed by a perpetual insolvency. 

5. As banks are at present managed, in too many 
instances, the officers of the banks themselves are the 
principal borrowers. By combination with each other, 
they may easily procure loans sufficient to control the 
price of any of the necessaries of life, within a large 
district. If, when their loans become due, the borrow- 
ers were obliged to make payment, they must relinquish 
their monopoly, and sell at the natural prices. But, if, 
as soon as they were called upon to make payment to 
the bank, they could suspend specie payments, it is evi- 
dent that they could prolong their loans, and keep up 
prices at their will. The tendency of such a course is 
manifestly to set the poor against the rich for cause, a 
most barefaced oppression. 

These are a few of the most obvious reasons why 
banks should always be obliged to redeem their bills, in 
specie, and at sight. If they fail to do so, the legisla- 
tures should not shield them, but should expose them to 
the natural action of law. A few examples of this kind 
would do much to place the currency upon a sound basis. 

In this manner, fluctuation may arise innocently. And 
every one knows that such fluctuations are constantly 
occurring in the mercantile world. But what occurs 
thus innocently, is liable to occur viciously. 

II. Viciously. A bank, established in a town remote 
from the ordinary channels of business, or the banks in 
any one place, if combined together, as they furnish the 
paper money which is used for all the common purposes 
of exchange, have, to a considerable degree, the mo- 
nopoly of the article in the market. Hence, by loaning 



PAPER AND SPECIE CIRCULATION. 275 

very freely at one time, they may bring the whole district 
into their debt. When this is the case, if they see fit 
to curtail their discounts, they may reduce the amount 
of circulating medium, and raise the price of money as 
much as they will. They may thus, by enforcing pay- 
ment, render half the population bankrupt, and possess 
themselves of their estates, at half price ; or else oblige 
them to pay double or treble the usual percentage of 
interest. That such events have occurred, is, I fear, 
too much a matter of history. And it has given rise to 
a frequent and unwarrantable prejudice against banks in 
general. 

While, however, all this is admitted, it deserves to be 
remarked : 

1. That these disadvantages of fluctuation, both from 
unskilfulness and from fraud, do not belong exclusively 
to banks, but are liable to exist under any circumstances, 
in which money is loaned and borrowed. Were there 
no banks, and were money to be loaned by private capi- 
talists, and even to be loaned in specie, the same incon- 
veniences though in a less degree would be liable to re- 
sult ; for men are always tempted to borrow to-day, 
more than they will be able to pay to-morrow. And it 
is evident that collusion, for the sake of raising the rate 
of interest, may be as liable to occur between individual 
money lenders, as between banks. 

2. The blame, when such a state of things as has 
been described, exists, is always laid upon the banks. 
This is manifestly unjust. It belongs to the borrower, 
just as much as it does to the lender. Men are very 
willing to borrow, but they veiy commonly call upon the 
community for great commiseration, when they are 
obliged to pay. I by no means object to the extension 
of any commiseration which may be convenient, but it 
would be a very inconvenient extension of it, if it releas- 
ed a man from the obligation to refund what he had bor- 
rowed, and, by the use of which, he has already, per- 
haps, realized a handsome revenue. The bank, by en- 
forcing payments in a time of pressure, is really doing a 
great service to the community. This is evident. If 



276 PAPER AND SPECIE CIRCULATION. 

the debts due to the banks were not paid, the banks 
would fail, and the whole circulating medium become 
worthless. So that, if, by their exacting punctuality, 
some persons fail, it is still better that a few persons 
than that the whole community should be ruined. 

3. Again : In a time of scarcity, banks are sadly 
abused, because they will not loan more money. A 
bank, if it be honest, and mean to pay its debts, has its 
limit, which it cannot safely pass, as truly as an individ- 
ual. When it has arrived at this limit, its loans must 
cease. A merchant who has involved himself in large 
transactions, expecting that he could borrow as much as 
he chose, is now disappointed, because his expectations 
are not realized. But what reason has he to complain ? 
The bank never promised to lend him, when it had noth- 
ing to lend ; nor to ruin itself, for the sake of saving 
him from the consequences of his own headlong improv- 
idence ; specially, when by doing this, it must involve 
not only itself, but him also in ruin. The bank was no 
party to his engagements ; it derives no benefit from 
them, and it is under no obligation to enable him to fulfil 
them. The only remedy for these evils manifestly is, 
for both parties to be willing to grow rich more slowly, 
and thus to assume less formidable risks. When a whole 
community has run into transactions beyond its means, 
and has become embarrassed, there is very little gained 
by the abuse of banks and of bank directors. 

If these remarks be just, there will follow several very 
obvious conclusions. 

1. That to lend money is just as necessary to the 
good of the community, and is, therefore, as innocent 
and as honorable as to borrow it. 

2. That an institution, organized for the purpose of 
lending money, is, so far as its object is concerned, as 
beneficial to the community, as innocent, and as honora- 
ble as any other institution. 

3. That a lender of money is liable to be dishonest 
and unskilful ; but that of a borrower of money is also 
liable to be dishonest and unskilful. 

4. And hence, that the one, as much as the other, is 



AGENCY OF GOVERNMENT. 277 

entitled to all the benefits of equal laws, and the fair and 
unbiased execution of them. If a bank conduct itself 
dishonestly, this is a reason why it should be dealt 
with according to just and equitable law ; but it is not 
a reason why all the capital of the country should be op- 
pressed, and every capitalist insulted. A carpenter may 
be dishonest ; and this is a reason why he should be 
dealt with according to just and equitable law ; but it is 
no reason why every carpenter should be oppressed, and 
his calling made a cause of opprobrium. The princi- 
ple which applies to the one case, applies equally to the 
other. 



SECTION IV. 

OP THE AGENCY OF SOCIETY, THAT IS, OF GOVERN- 
MENT, IN RESPECT TO A PAPER CIRCULATION. 

I have already remarked, when treating of specie cir- 
culation, that coin was employed as a circulating medi- 
um, not in consequence of the act of a government, or 
of the stamp which it bore, but simply in consequence 
of its adaptedness to be employed for this purpose, and 
of the universal desire of the community so to employ 
it ; and also, that the whole agency of the government 
is properly limited to the making of those arrangements 
which would enable it to accomplish this purpose the 
most successfully ; that what substance a community 
should employ, is none of the concern of a government ; 
its only concern being, so to prepare the substance em- 
ployed, that it may be used with the greatest common 
advantage. 

Now, the same remarks manifestly apply to whatever 
may be used as a circulating medium, whether it be gold 
and silver, or paper. Hence, 

1. A government has no right to interfere with the 
original question, what shall the currency be ; this may 
be safely left to the decision of the public itself. If the 
24 



278 AGENCY OF GOVERNMENT. 

people choose to use a mixed, instead of a metallic cur- 
rency, they have a right to use it ; and no one, either in- 
dividual or associated, has any right to forbid that use. 
If I present a check to a bank, and they offer me in 
payment either specie or bills, and I choose to take 
their bills, it is a matter wholly of my own concern. I 
ask permission to make this choice, of no one on earth. 
If I have a thousand dollars to pay in New Orleans, and 
I choose to take the bill or the draft of a bank, and send 
this in payment instead of the thousand dollars in silver, 
and my creditor receive it in payment, if both he and 1 
are satisfied, I see not that any one has a right to in- 
terfere. 

2. But, although a community may choose a mixed, 
instead of a metallic currency, and although they have a 
right to choose it ; neither any community, nor any in- 
dividual of a community, chooses either a worthless or a 
fluctuating currency. While, therefore, a government 
has no right to enact, that a currency shall be any thing 
else than the people wish it to be, they have a right to 
take all proper means to make it such as the people wish 
't to be. Hence, 

1 . They have a right to take such means as will give 
all reasonable security to a mixed currency. These 
means have respect, in general, to the liability of direc- 
tors and stockholders to redeem their bills. In what 
manner this security can be best effected, it must be left 
to practical men to decide. In some cases, all the 
property of all the stockholders is rendered liable for 
the debts of the bank. This would commonly be a per- 
fect guarantee. In other cases, I believe, the property 
only of the directors is held liable. In what way soever 
security can be best and most equitably effected, I think 
a government has an undoubted right to effect it. 

2. A government has a right to take all reasonable 
means to diminish the fluctuation of a paper currency. 
We have seen that, inasmuch as the banks promise to 
redeem their bills in specie, the amount of paper which 
they may safely issue must always depend upon the 
amount of specie in a country. Fluctuations in the 



AGENCY OF GOVERNMENT. 279 

amount of paper must follow fluctuation in the amount 
of specie. This fluctuation will always be less, when 
the proportion of specie to paper is great, and vice versa. 
One method, therefore, of preventing this evil, is, so to 
construct the currency, that the proportion of specie to 
paper shall be too great to be affected by any thing but 
large and long continued exportations of the precious 
metals. This result may be in part effected by the pro- 
hibition of the issue of small bills. This will, by ne- 
cessity, place in the hands of every individual, specie 
for every amount which he may hold of less value than 
the lowest note issued. Were no bank in this country 
to issue notes of a less denomination than five or ten 
dollars, most of the sums held by individuals, in notes 
of one, two, and three dollars, would be in silver. If 
every individual of the twelve millions in the United 
States, possessed two dollars more in specie than at 
present, this would amount to twenty-four millions more 
of specie than we now possess. This would, of itself, 
be sufficient to prevent the evil arising from any ordinary 
fluctuation. 

In addition to this, T suppose that an exact account 
should be kept, and at short periods made public, of the 
amount of specie imported and exported. This would 
give to the banks, timely notice of the danger, and, at 
the first intimation of excessive issues, they might cur- 
tail their discounts, in season to avert the evil before it 
became excessive and remediless. 

3. While we deny the authority of legislative inter- 
ference to oppress banks, we equally deny its authority 
to protect them against the consequences of their own 
misconduct. A bank promises to redeem its notes in 
specie ; a legislature has no more right to invalidate this 
obligation than to invalidate any other. If an individual 
fail to discharge his debts, all his property is liable to 
satisfy the demands of his creditor. If a joint stock 
bank fail, only the amount of its contributed capital is 
liable. The reason is, therefore, stronger why the latter 
should be amenable to the common law of debtor and 
creditor than the former. 



280 AGENCY OF GOVERNMENT. 

So far as I can discover, the power of a government 
over a paper currency, is conferred solely for the ac- 
complishment of these two objects ; and, of course, it 
is restricted to the accomplishment of these two objects. 
A government has no right to interfere with it for any 
other purpose. It has, for instance, no right to interfere 
with the currency, because the people import too much, 
or because they import too little ; because they buy too 
much land, or because they buy too little land ; because 
they over-trade, or because they under-trade. Its pow- 
er was conferred for no such purpose, and to use it for 
such purpose is usurpation. 

But other grounds for legislative interference with 
banking institutions are assumed, which, if correctly as- 
sumed, are of a very extraordinary tendency. Some of 
these, it may be proper for us briefly to consider. For 
instance, it is said, that banks are the creatures of the 
legislature; and that bank directors are the agents of the 
legislature ; and, therefore, that a legislature may right- 
fully exercise over them any authority which it chooses ; 
and may impose upon them such laws as it sees fit. Such 
an assumption as this, deserves at least a passing notice. 

1. It is asserted, that a bank is the creature of the 
legislature ; and, therefore, that a legislature may right- 
fully impose upon its creature such laws, and subject it 
to such jurisdiction, as it pleases. 

The assertion is somewhat figurative. What is meant, 
when it is said that a bank is a creature of the legisla- 
ture ? In what does a banking company differ from a 
banking individual ? The only difference, that I can 
discover, is, that one is incorporated by a legislative act, 
the other is not. 

What, then, is an act of incorporation 9 It is merely 
a power granted by a legislature, to several individuals, 
to do, as a society, some innocent act, which they may 
thus do more conveniently, but which any one of them 
might, if he saw fit, do without any act of the legisla- 
ture. I say, some innocent act, for what is not innocent, 
should be allowed neither to individuals nor to societies. 

The necessity of such a provision is manifest. Many 



LEGISLATIVE POWER OVER BANKS. 281 

innocent purposes can be accomplished, only by many 
persons associated together. Such are purposes of 
charity, of science, of internal improvement, and many 
others. Without corporate powers, persons so associ- 
ated could neither hold property, nor enforce any regu- 
lations upon each other ; and, besides, without them, 
they could not be known in law, nor could a creditor 
nave any claim upon the property which they might hold 
Hence, when individuals wish to be associated for any 
innocent purpose, they may claim an act of incorpora 
tion as a right ; and it is necessary, for the protection ot 
the community, that it should be granted. And hence, 
from both of these considerations, it is incumbent upon 
a legislature to grant it. The simple principle involved 
is this : Is this an innocent means of promoting my own 
happiness ? If it be, society is under obligation to afford 
it to me. 

Sometimes, the corporate power is conferred by a 
separate act, in every individual case ; at other times, 
a general law is passed, empowering any individuals to 
become a corporate body, by conforming to specified 
conditions. Under the latter case, come the laws of 
partnerships in general ; or, more particularly, the law 
of limited partnerships, of the State of New York. By 
this last act, any number of individuals may unite in 
business, and be liable in no greater amount than they 
have contributed ; that is, to all intents and purposes 
may become a corporation, by complying with certain 
conditions. Such is also the case with ecclesiastical 
corporations in that State. 

Now, in what manner soever this is done, its effect is 
simply this : It gives to certain persons associated to- 
gether, under certain circumstances, the power to act, 
in the same manner as an individual might act, and places 
them under the same responsibilities as those under 
which an individual is placed. This is the meaning of 
an act of incorporation. And to make heavy charges, 
and exact bonuses for the passing of such an act, is un- 
just and oppressive. A man might as well be charged 
for the right of trial by jury. 
24* 



232 LEGISLATIVE POWER OVER BANKS. 

This, then, is the meaning of an act of incorporation, 
and this is what is really meant by the figurative and mys- 
terious terms, " a creature of the legislature." If, then, 
a legislature possess unlimited power over a bank, be- 
cause it has received an act of incorporation, it possess- 
es the same unlimited power over all its creatures ; that 
is, over every thing that is incorporated. If the power 
exist, and exist for this reason, it exists in every case to 
which the reason applies. Thus, he who owns a manu- 
factory alone, may conduct it as he pleases, and buy and 
sell when he chooses ; subject only to the ordinary laws 
of the land. But, if ten men become incorporated, as 
a manufacturing company, they are under the unlimited 
power of the legislature ;* and the legislature has an un- 
controlled right to say when, and where, and of whom 
they must buy ; and when, where, and to whom they 
must sell ; or whether they may buy or sell at all. Or, 
again ; An individual has the right to worship God as he 
pleases. But, if several individuals wish to unite togeth- 
er in the worship of God, and, for their own conven- 
ience, desire to be incorporated for the promotion of 
this object, their rights of conscience cease ; and, after 
they have erected their house of worship, a legislature 
may shut it up, command them to worship when and how 
it pleases, or may command them to worship Mahomet 
or Juggernaut ; and all this is no oppression, but is a 
matter of simple, honest, common-sense justice ; be- 
cause these individuals have, for their own convenience, 
and for the security of others, become in law a corpo- 
rate body ! 

But even this is not all. Legislation never confers 
any right whatever; it only confirms those rights which 
previously existed. A legislative act can confirm me in 
the possession of a house which is my own property ; 
,but it can give me no right to take possession of a house 
which is the property of my neighbor. In the case of 
corporations, the same principle holds. A legislative 
act, only defines and establishes for several individuals, 
a right which they previously possessed. But the case 
is the same with almost all the rest of our possessions. 



LEGISLATIVE TOWER OVER BANKS. 283 

We hold them under laws by which our right is defined 
and established. So that, upon this principle, every man 
is the creature of the legislature ; that is, a legislature is 
the fountain of all power, the creator of all right, and 
deals out to its creatures and vassals, whatever of liberty 
or of possession it sees fit to confer. This is, surely, a 
novel doctrine to advance in the audience of a free peo- 
ple ; and whenever it is advanced, the time has mani- 
festly arrived, for a people which intends to continue 
free, to turn their attention to the consideration of first 
principles. 

The simple truth in the case must be at once appa- 
rent. An act of incorporation, has no other effect, per 
se, than to place a society under the same protection as 
individuals, and subject it to the same responsibilities as 
individuals ; that is, to place it under the common and 
universal laws of the land. If, together with this, a 
corporation enters into a contract with the legislature to 
do certain acts, this is another affair, and is subsequent 
to, and different from, the act of incorporation. By 
such contracts, both parties are equally holden. But 
this makes the corporation no more a creature of the 
legislature, than it makes the legislature a creature of the 
■corporation. A legislature may agree with a contractor 
to build a wall ; but this makes the builder in no respect 
a creature of the legislature ; nor does it give them pow- 
er over him in any other respect, than to oblige him to 
fulfil his contract, according to the laws of the land. 

The only valid objection that, so far as I perceive, can 
be urged against these considerations is this. An act of 
incorporation changes the responsibility of the incorpo- 
rators. Without such act all their property would be 
liable for the debts of the incorporation ; with it the por- 
tion which they have contributed alone is liable. That 
there is weight in the objection I readily grant. It 
would, however, prevail no further than this. It would 
show, either that no such incorporations should be estab- 
lished ; or, that the legislature establishing them was 
bound to enforce such regulations, that the safety of the 
public should be exposed to no additional jeopardy. In 



2S4 LEGISLATIVE POWER OVER BANKS. 

this conclusion I heartily concur. After this is done, it 
does not follow from the objection that a legislature has 
any more right to oppress or to favor a bank, than to op- 
press or favor an individual. 

But it is also asserted, that bank directors are the 
agents of the government, or of the legislature, and 
hence, that they are under the unlimited control of the 
government, which is the principal. The reason for 
this assertion is, that the government has the right to 
control the circulating medium ; that paper money is the 
circulating medium ; that bank directors issue paper 
money ; and that, therefore, they are under the control 
of the government. 

To this, it may be replied : 

1. The control of the government over the circulat- 
ing medium, is limited in degree ; and even within this 
degree, it is limited by the object for which it may be 
exerted. A government has a right to enact such laws 
as may ensure the payment of the debts of a bank, as 
well as of all other debts, and as may prevent excessive 
fluctuation in the circulating medium ; that is, they have 
a right to take care that the circulating medium be sound 
and convenient, but, I see not that they have any other 
right over it. And this right is equally limited, whether 
the circulating medium be paper or money. 

2. Suppose bank directors to issue this circulating 
medium, and that, on that ground, they are under the 
control of a legislature ; they are then under its control 
only within the limits, and for the purposes above speci- 
fied ; that is, they are to be placed under the general 
laws for the regulation of the circulating medium. To 
exert any other power, or to exert a power for any other 
purpose, is tyranny. 

3. But let us inquire in what sense bank directors are 
agents of government. The government, in their case, 
as in many others, requires, and has a right to require, 
that, in the conduct of their business, they shall conform 
to certain principles, made necessary for the good of the 
whole. But does this render them agents of the gov- 
ernment ? He who sells gunpowder, is obliged to sell 



LEGISLATIVE POWER OVER BANKS. 285 

it under special regulations ; but is he, on this account, 
an agent of government ? Every man, who buys or 
sells at all, buys or sells under some regulations of a leg- 
islature ; but is he, on this account, their agent, over 
whom they have the right of unlimited control ? 

But, take a still more analogous case. Suppose an 
individual, or a mining company, to obtain from their 
mines, one hundred thousand dollars a year. This they 
appropriate to the business of loans. They have, how- 
ever, no right to coin it themselves, but must have it 
coined at the mint ; that is, if they be a company, they 
must be incorporated, in order to carry their purposes 
into effect ; and they must carry them into effect, sub- 
ject to such rules as the good of the whole may demand. 
But does this render them, or their directors, the agents 
of government ? or does this give to the government any 
other power, than that which it exercises over any other 
individual ? 

Suppose, now, several individuals have obtained one 
hundred thousand dollars., in any other way than by 
mining, and that they wish to employ it in the business 
of loaning. They are under obligations to conform to 
the general laws made for the regulation of the circulat- 
ing medium, but this is all. They do not, in this man- 
ner, become the agents of government, any more by 
loaning, than by doing any thing else. And suppose 
that their customers prefer to borrow paper, instead of 
metallic money. If they issue paper, they are under 
obligation to issue it in obedience to the laws enacted 
for the purpose of insuring its goodness and stability ; 
but they are not, on this account, the agents of govern- 
ment, nor has the government any more power over 
them than it has over any other individuals. It seems 
to me, therefore, that the second assertion, namely, that 
bank directors are the agents of the government, is 
wholly gratuitous. 

But it is said, that the banks have a monopoly of this 
article, money ; and that, therefore, they are, of right, 
subject to particular legislation. To this, I reply ; 
who creates this monopoly ? Certainly not the banks, 



286 LEGISLATIVE POWER OVER BANKS. 

but the legislature themselves. If the legislature refuse 
banking privileges to those who deserve them, or grant 
them under sucli terms, that but few persons can accept 
of them, and thus diminish the amount of banking capi- 
tal, and render it inadequate to the wants of the commu- 
nity, they are the authors of the monopoly ; and they 
may not plead their own wrong, as an excuse for injus- 
tice.* Were they to oblige a shoe-maker to pay ten 
thousand dollars for the privilege of exercising his profes- 
sion, and then, because there were but one or two shoe- 
makers in a city, undertake to regulate his business, 
interfere with his concerns, and fleece him over again, 
on the ground that he possessed a monopoly, we should 
speak very mildly of such legislation, when we called it 
oppression and tyranny. He would very naturally say : 
" I do not ask you for your monopoly. It is all of your 
own imposing. It is a creature of the legislature. Let 



* The fact, no less notorious than disgraceful, is, that, in many of 
our States, bank charters are granted or denied for purely political 
reasons. They are reserved as the reward for services done to the 
dominant party. Hence, one half of the community at once is, by this 
policy, excluded from the privilege of employing their capital in this 
manner. The charters thus granted, are frequently granted not to 
those who are possessed of the necessary capital, but to those who 
have promoted an election. It is manifest that neither activity nor 
skill, in political intrigue, will add any tiling to the value of a bill, or 
afford any guaranty ior the honest management of a bank. If, how- 
ever, as is frequently the case, the applicants do not wish to hold the 
shares themselves, they sell them at an advance, before any of the 
capital has been paid, to persons of the other party. These last, 
therefore, are obliged to pay this advance, as a bonus to those who 
have obtained the charter ; and thus, their property is taxed at the 
outset, to reward the industrious partisan. This advance, by its 
whole amount, reduces the value of banking capital, and prevents 
men from so investing their property. In this manner, the monopoly 
is created ; and thus, very commonly, are spurious banks brought 
into existence. It will be found, I believe, in the greater number of 
instances in which fraud has been detected in the management of 
banks, that they have been banks which have been decidedly parti- 
san in their character. The evils resulting from this system are, 
however, all charged upon banks and bank directors. No one thinks 
of arraigning the legislature, from which all these evils truly eman- 
ate. In some of the States, banking capital is taxed so heavily, that 
it will not yield a fair profit if honestly conducted. Men of charac- 
ter and capital, therefore, abandon banking, and the stock lalls into 
the hands of the less scrupulous. 



LEGISLATIVE POWER OVER BAIN'KS. 287 

every one who chooses, make shoes, subject only to the 
common laws of the land, and both the monopoly, and 
your reasons for interfering with me in consequence of 
it, will cease together." And the case is the same with 
banks. Let all banking be governed by principles 
which shall ensure the security of the community, and 
then let banks be multiplied at will. If they yield more 
than an average profit, they will thus be increased until 
their profit is reduced to that of other business. If they 
yield less, they will be diminished, until they merely 
supply the wants of the community. Thus, the monop- 
oly, and the reason for oppression founded on it, will 
terminate together. 

I have pursued this subject to a greater extent than I 
should otherwise have done, were it not that a very 
general disposition exists, and has always existed, to in- 
terfere with the rights of capital ; and because no coun- 
try can long be prosperous, where these rights are not 
respected. Men too frequently assume, that capital, 
devoted to the purposes of loaning, is owned by the 
rich ; that, by overtaxing and oppressing it, the rich 
only suffer ; and, as the rich are always the minority, 
they must bear it, without any redress. Now, setting 
aside the equity of such a notion, it is still proper to re- 
mark, that there is nothing which so readily eludes the 
grasp of oppression, as capital of this kind. It is, of all 
capital, the most easily transferred. If oppressed, it 
will be transferred to more congenial climates ; the in- 
dustry of the country from which it has been removed, 
will languish ; its population will diminish ; and the ma- 
jority will find, too late, that the blow which was aimed 
at the minority has recoiled upon themselves. There 
is no better policy, either for nations or for individuals, 
than strict and even-handed justice. 

The course of legislation with respect to banks, has 
too frequently been at direct variance with the principles 
of political economy. By charging excessive bonuses 
for charters, and imposing excessive taxes upon stocks, 
they have taught banks the lesson of injustice. While 
they have been doing this, however, they have generally 



288 LEGISLATIVE POWER OVER BANKS. 

been willing to defend banks from the consequences of 
suspension, and continue their charters while they violate 
their chartered obligations. The language of this con- 
duct, when truly expounded, is simply this, Let us 
fleece you and you may fleece the public. 



289 



BOOK THIRD. 



DISTRIBUTION. 



We have seen that, in order to the creation of vslue, 
it is necessary that labor be united to capital. In some 
cases, both of these are the property of the same indi- 
vidual ; that is, the same person both owns the capital 
and performs the labor. In by far the greater number 
of instances, however, they are the property of different 
individuals ; that is, one person owns the capital, and 
another person performs the labor. As, when the same 
person owns both labor and capital, the whole increase 
of value becomes his exclusive property ; so, when 
these belong to different individuals, the value belongs 
to them in common ; that is, a share of it is the portion 
of each. 

If, then, profit arise from any operation in industry, 
which has been the joint result of the labor of one man, 
and the capital of another man, it is a matter of some 
consequence to ascertain the principles, on which the 
division of this profit, or the distribution, shall be ef- 
fected. And, besides, in every important operation, a 
great variety of laborers is, of necessity, employed ; and 
of these laborers, the skill and talents are very dissimi- 
lar. To these different persons, very different propor- 
tions of the profit, equitably belong. And, also, the 
value of the capital thus employed, may be different at 
different times, and in different occupations. Hence, 
there will arise a difference in the proportion of profit 
25 



290 DISTRIBUTION. 

which shall, at different times, be assigned to a given 
amount of capital. And, if it be said, that the remun- 
eration in these cases is always arranged among men by 
mutual consent ; it may be still important to ascertain 
the principles on which this mutual consent is founded. 
This book would, therefore, naturally be divided into 
two parts : First, Wages, or the price of labor ; and, 
Secondly, Interest, or the price of capital. But, inas- 
much as Land is a form of capital, in some measure 
peculiar, it may be more convenient to consider it sepa- 
rately. We shall, therefore, divide the present book 
into three chapters. 

I. Wages, or the price of Labor. 

II. Interest, or the price of Money. 
IIL Rent, or the price of Land. 



£91 



CHAPTER FIRST. 

OF WAGES, OR THE PRICE OF LABOR. 

In this chapter, I shall consider, 1st. The general 
principles of icages ; and, 2dly. The special circum- 
stances, by which those principles are modified. 



SECTION I. 

THE GENERAL PRINCIPLES OF WAGES. 

The price of any thing, is its exchangeable value, ex 
pressed in the form of money. 

Exchangeable value, is cost, plus the effect of supply 
and demand. 

In order, therefore, to understand the exchangeable 
value of labor, we must consider, 1st. Its cost ; and, 2dly. 
The effect of supply and demand upon it. 

I. Of the Cost of Labor. 

Labor may be divided into two kinds : 1st. Simple 
labor, or that which is unconnected with previously ac- 
quired skill ; and, 2dly. Educated labor, or that in 
which industry is combined with the results of previous 
education. 

First. Of simple labor. 

In order to produce this, all that is necessary is mus- 
cular strength, resulting from a properly formed body, 
and a sound mind, in ordinary health. 

But, in order to the production of health and muscular 
strength, it is necessary that the human being be suppli- 
ed with food, clothing, shelter, and, at times, with medi- 
cine and medical attendance. If a man have nothing to 



292 GENERAL PRINCIFLES OF WAGES. 

eat to-day, he cannot labor to-morrow. If, for a few 
days, he be deprived of food, he will inevitably die. If 
his food be insufficient in quantity, or of improper quali- 
ity, his strength will diminish, and, of course, the mus- 
cular efforts, of which he would be otherwise capable, 
will be decreased. If this be continued but for a very 
short time he will become sick, and thus lose the power 
of laboring altogether. If he be not relieved, he will 
die. Hence we see, that there is a natural minimum of 
the cost of labor. The least cost, is that which is suffi- 
cient to give the laborer all the necessaries of life. If 
we give less, we not only diminish the power of labor, 
but, in a short time, take it away altogether. Hence, 
the minimum price of wages, does not depend upon the 
will of employers, but upon those physiological laws 
which regulate the existence of man. 

2. But, this is not all. Man is short-lived. The spe- 
cies is kept in existence by succession. Unless chil- 
dren be reared, the race would soon become extinct. 
And children are, for several years, not only unable to 
earn any thing towards their own support, but they also 
require a large portion of the time and labor of the 
parent. A mother, who has the care of several chil- 
dren, and who also provides for the domestic wants of 
her family, is rarely capable of much additional labor. 
Hence, in order to keep the number of laborers the same y 
in any particular country, it is necessary that the parent 
or parents receive sufficient wages, not only to provide 
food, clothing, and shelter for themselves, but also, for 
at least two children, until the children are able to sup- 
port themselves. 

3. But, this is not all. The life of man is often pro- 
longed beyond the period of active labor. In old age, a 
man is either utterly disqualified for labor, or else his la- 
bor is insufficient to support him. Hence, he must either 
be supported by his children, or else he must, when in 
full strength, have accumulated sufficient property to 
support him in his decrepitude. Hence, the wages of 
labor must be sufficient, not only to support the laborer, 
and at least two children, but also to provide for, or to 



GENERAL PRINCIPLES OF WAGES. 293 

sustain him, in old age, when the power of labor is ex- 
hausted. 

If so much as this be earned by the laborer, the pop- 
ulation of a country may remain stationary. If two 
children be reared by every human pair, these will sup- 
ply, but will no more than supply, the ravages of death. 
This, therefore, is manifestly the lowest price of labor. 
If wages do not equal the amount necessary for this re- 
sult, men will become sick and will die ; a less propor- 
tion of children than this will be reared ; and population 
will diminish. The lowest price at which the labor of 
any animal can be procured, is the cost of rearing him, 
and of maintaining him in health and vigor. 

But, it is the fact, that the natural rate of the produc- 
tiveness of the human species is more rapid than that of 
two children to two parents. In favorable circumstan- 
ces, two parents frequently rear six, eight or ten chil- 
dren. The number of children who are born, does not 
depend upon the circumstances of the parents. More 
children are commonly born to the poor, than to the 
rich. The rich are often childless ; the poor very rare- 
ly. But, suppose that the laborer receive only suffi- 
cient wages to enable him to support himself and wife, 
and two children ; and that his family amount to six or 
eight human beings, it is manifest that some of them 
must perish. The food of two, will not sustain six or 
eight. The others must starve, or, in some way or 
other, die of want. The manner in which this occurs, 
it is painful to contemplate ; though, in most of the older 
countries, it is frequently seen. The pressure, in such 
a case, must fall upon either the parent or the child, and 
parental affection generally decides upon which it shall 
fall first. When parental affection is strong, the parent 
denies himself the necessaries of life, in order to support 
his children, until his constitution, worn down by im- 
proper and insufficient food, sinks beneath the burden, 
and he dies in middle age, leaving his children helpless. 
When the parental feeling is less acute, the suffering 
falls directly upon the children. Their food being scan- 
ty and unhealthy, but few survive early infancy ; and 
25* 



294 NATURAL COST OF LABOR. 

those who do survive it, grow up feeble and unhealthy 
A human infant is a tender plant, easily cut down, and 
liable to frequent diseases. Measles, whooping-cough, 
croup, teething, acute and chronic complaints of the 
lungs, head, and abdominal viscera, require assiduous at- 
tention, warm clothing, and suitable food for the pa- 
tient, or else its chance of living is very small. When 
children, ill-fed, ill-clothed, and without medicine and 
medical attendance, are attacked by these diseases, they 
die by thousands. When a portion of a family is thus 
removed by death, a larger portion of the necessaries of 
life remains for those who survive ; and, thus, their 
chance of life is increased. Thus, out of a very great 
number of births, frequently, but two or three children 
are reared. And this view of the subject is abundantly 
supported by facts. Adam Smith informs us, that it is 
no uncommon thing to see a woman, in the Highlands of 
Scotland, who has borne twenty children, of whom not 
more than two have arrived at adult years. The same 
author adds, that although the children born in military 
barracks are numerous and apparently healthy, yet offi- 
cers have informed him, that rarely enough of them are 
reared, to suppiy the regiments with drummers and fifers. 

Now, we can scarcely suppose that to be the condition 
of man which his Creator intended, in which so laarge 
number perish in infancy, from suffering, from hardship, 
and from want. Hence, I suppose the natural cost of la- 
bor, or that cost which corresponds with the proper con- 
dition of man, would be that which allows of the rearing of 
such a number of children as naturally falls to the lot of 
the human race. This, however, pre-supposes the labor- 
ers to be industrious, virtuous, and frugal. If they be im- 
provident, indolent, intemperate, and profligate, and thus 
either do not earn a competency, or else, having earned 
it, squander it in vice, the fault lies, not in their wages, 
but in themselves. Of course, the correction must come, 
not from a change in wages, but from a change in habits. 

It is, however, here to be remarked, that what is 
necessary to the sustentation and comfort of a human 
being, differs greatly in different climates. In northern 



NATURAL COST OF LABOR. 295 

latitudes, human beings seem to need a larger portion of 
animal food, in order to endure labor. The Esquimaux 
live upon animal food entirely, and Sir E. Parry informs 
us, that, while wintering at the north pole, the appetite 
of both his officers and men was much stronger than 
usual, not only for animal food, but for animal food of 
the richest and most nutritious description. And as an- 
imal is more expensive than vegetable food, the north- 
ern laborer, on this account, is more expensive than the 
southern. Again : In cold climates, clothing is much 
more expensive. A laborer must provide both winter 
and summer clothing ; he must protect himself from the 
cold and wet, or he will sicken and die. In cold cli- 
mates, much greater expense is incurred, in the erection 
of houses. A comfortable house, in a northern climate, 
costs the labor of several men for several weeks, and of 
some men of considerable skill. In India, a day or two 
are sufficient to erect a bamboo-house, which, in that 
climate, answers tolerably well for the purposes of a 
habitation. And, besides this, in a cold climate, fuel, 
which must be used for from three to nine months in the 
year, is a very great item in the bill of annual expense. 
In warm countries, fuel is used for no other purpose than 
that of cooking ; and for this purpose, there, a very 
small quantity suffices. 

These circumstances are sufficient to account, in part, 
for the different prices of labor, in southern India, and 
in the northern parts of Europe, and of the United 
States. Laborers in Batavia are hired for four cents a 
day ; and, in India, I believe, they are hired for a less 
sum. This would scarcely pay for the fuel, with which 
the meals of a northern laborer are cooked. 

It would seem, at first view, from these facts, thai 
laborers in southern latitudes would have a great advan- 
tage over those at the north, and must, of necessity, un- 
dersell them in every thing. But such seems not to be 
the case. The enervating nature of the climate, unfits 
them for labor ; and indisposes them to the putting forth 
of intellectual skill. Hence it is, that this labor is mere 
feeble muscular force, accompanied by scarcely any of 



296 NATURAL COST OF LABOR. 

the advantages derived from natural agents. The rigors 
of a northern latitude compel men to invention, and in- 
vigorate them for continued effort. Hence, although a 
northern laborer receives one dollar, or one dollar and 
fifty cents per day, and the Hindoo receives only four 
cents, yet the former is, in fact, the cheaper laborer ; 
that is, it is the most economical to employ him. And 
the evidence of this is seen in the fact, that raw cotton 
is, at present, carried from India, manufactured in Great 
Britain, and then carried back to India, and sold cheap- 
er than it can be made in India by the native workmen. 

Secondly. I have, thus far, treated only of the cost 
of simple labor ; that is, of labor with which no such skill 
is united, as requires a previous education. 

But, this is only a part of the labor which is employed 
by man. A large portion of it, requires special and 
peculiar training. This, of course, adds to its cost. 
Suppose, as I have already stated, that the natural price 
of simple labor were merely sufficient to sustain a family, 
consisting of the ordinary number of persons. A man 
would, therefore, by labor, without any education, under 
such circumstances, earn this amount. But, if another 
labored for the same number of hours, but labored at an 
operation which he could not learn to perform, without 
spending six or seven years in acquiring an education, it 
is manifest that the second would be entitled to addition- 
al wages. Thus, suppose the laborer must spend seven 
years in acquiring a knowledge of his trade. During 
this time he is earning nothing. Now his wages, at com- 
pound interest, if he had been at profitable labor, would 
amount to a considerable sum, specially if they had been 
invested in capital, which might have been united with 
his own labor. He is entitled, therefore, to such an 
addition to his wages, as would pay the interest upon 
this amount. Besides, in many cases, the learner not 
only earns nothing, but is obliged to feed and cloth 
himself. This amount is to be added to the capital 
which he has expended, and for which his wages should 
pay the interest. Nor is this all. The learner is fre- 
quently obliged to pay a large sum for instruction. 



NATURAL COST OF LABOR. • 297 

This, also, is to be added to his investment, for which 
he is to be paid when we employ him. Thus, in the 
learned professions, a student is obliged, commonly, to 
spend two or three years in preparing for college, to 
spend four years in college, and three years in professional 
studies, before he is admitted to practice. During the 
whole of these nine or ten years, in which he earns noth- 
ing, he must be fed, clothed, and furnished with books, 
and must pay a very considerable sum to his instructors 
for tuition. He must, in most cases, also possess the 
means to meet all these expenses, before he commences. 
Now, had he used such a sum skilfully, from the time at 
which he commenced, to that at which he concluded his 
studies, it would have amounted to a small competency. 
He is, therefore, fairly entitled, in addition to the price 
of simple labor, to such wages as would pay the inter- 
est of whatever such a sum would have amounted to, had 
it been used with ordinary skill. 

Wages, which, in addition to the price of simple 
labor, would pay the interest of whatever is expended in 
procuring the necessary education, would hence be the 
lowest cost of such labor. And, it is manifest, also, 
that these should vary with the cost of the investment 
necessary for acquiring the skill. Thus, the wages of 
him who was obliged to sustain himself while a learner 
should be higher than those of him, who, though he earn- 
ed nothing, was fed and clothed by his teacher. The 
wages of him who was obliged to pay for his tuition, 
should be higher than those of him, who, though he fed 
and lodged himself, received his tuition for his services. 
And, if such wages be not generally paid, such labor 
will not ordinarily be produced. Parents who have cap- 
ital to bestow upon their children, are generally desirous 
of investing it to the best advantage. If the capital 
necessary to furnish a professional education, will not im- 
prove the condition of a child, the parent will not invest 
the money in a professional education, but will employ it, 
for the advantage of his child, in some other way. In 
this manner, the supply of such labor will be diminished, 
until necessity obliges men to offer greater inducements 
to produce it. 



293 SUPPLY AND DEMAND FOR LABOR. 

II. Of the supply and demand for simple and educat- 
ed Labor. 

First. Of the supply of Simple Labor. I have be- 
fore stated, that the number of children born does not 
depend either upon the riches or the poverty of the par- 
ents ; but that the number born, is generally greater 
among the poor, than among the rich. I have also 
stated, however, that the number reared does de- 
pend, very greatly, upon the circumstances of the par- 
ents. When the wages of parents are barely sufficient 
to rear two children., but two will be reared ; the rest 
will die in infancy. When wages will allow of rearing 
four, four will, on an average, be reared ; and so on, 
until we arrive at the natural limit of fecundity of the 
human race, supposing the habits of the parents to be 
virtuous, industrious, and frugal. Now, as simple labor 
requires nothing but healthy human beings, it is manifest 
that the supply of this labor will be in proportion to the 
demand ; that is, if wages be such as to indicate an ac- 
tual demand for a large increase of labor, a large in- 
crease of labor will be the result. If wages be such as 
to demand only a diminished amount of labor, a dimin- 
ished number of laborers will be reared. And this re- 
sult will take place, until, on the one hand, it reaches 
the limit of the natural increase of the human race ; or 
until, on the other hand, the number of human beings be 
so reduced by death or by emigration, that it can be 
sustained by the wages which industry can command. 

If this first limit be reached; that is, if wages be so 
high as to support all the children that are born, and yet 
there be a want of laborers, wages will rise very high; 
and the deficiency will generally be supplied by immi- 
gration. Laborers from less favored countries will then 
flow in, to supply the demand. The overburdened 
population of an older country will be drained off, and 
the surplus capital of a new country will be profitably 
employed. 

2. Such is the case with simple labor, or that which 
is produced by the mere multiplication of human beings. 
The same principles apply, in substance, to that sort of 



SUPPLY AND DEMAND FOR LABOR. 299 

labor, which consists of industry, directed by previously 
acquired skill, but which requires no special natural en- 
dowment. In this case, as has been remarked, if the 
investment made in education will afford sufficient emol- 
ument, in addition to that obtained by simple labor, it 
will be produced. If this additional emolument be in- 
sufficient, it will not be produced; that is, men will not 
be educated for this particulur occupation; or, if they 
have been educated for it, they will leave it, and devote 
themselves to some other pursuit. 

3. But, it frequently happens, that not only an educa- 
tion, but also peculiar native talent is necessary, in or- 
der to arrive at eminence in a particular pursuit. When 
this is the case, the supply is limited by the gift of the 
Creator, and cannot be increased by the agency of 
man. No pecuniary emolument could create the talent 
of a Milton or a Shakspeare, a Cicero or a Demos- 
thenes, a Watt or a Fulton. Hence, the demand for 
such talent being great, and the supply limited, and by 
human effort incapable of increase, the exchangeable 
value of its productions is frequently great. The emol- 
uments of Sir Walter Scott were princely. It not un- 
frequently happens, however, that this sort of talent is in 
advance of its age, and its value is not appreciated un- 
til after the death of its possessor. Although, however, 
demand cannot create unusual genius, yet it is the fact, 
that, whenever the demand is greatest for any particular 
talent, then that talent is most likely to arise. The rea- 
son I suppose to be, that, in proportion to the encour- 
agement which it receives, the less is the liability that 
any portion of that which the Creator has bestowed will 
be lost. Military talent, which is commonly held in 
high estimation, seems 10 be of very frequent occurrence. 
A nation has rarely any real need for it, without produc- 
ing, in a short time, as great an amount of it as can be 
desired. The same remarks apply, in a considerable 
degree, to the talent for invention, for scientific investi- 
gation, for eloquence, and many others. 

Secondly. Of demand for Labor. We have al- 
ready divided labor into two kinds, viz : First, Simple 



300 SUPPLY AND DEMAND FOR LABOR. 

labor, comprehending, under this term, that which re- 
quires only that skill which every person may easily ac- 
quire; and, secondly, that which requires some peculiar 
talent, and is perfected only by long and expensive 
training. We shall here, as above, consider these sep- 
arately. 

I. Of Simple Labor, and that lohich requires only 
such skill as may be easily acquired by all. 

This is the sort of labor required to produce the ne- 
cessaries of life; that is, labor in the several departments 
of operative industry. For this labor, the desire is in- 
cessant and universal. Every one in the community 
needs, at every hour of his life, the results of that labor 
which produces food, clothing, fuel, and shelter. Unless 
these can be procured, the human being will die; and, 
as these articles perish with the using, the demand is 
not only imperative, but unremitting. 

Now, such being the fact, he who possesses capital, 
knows that if he can transform it into such products, he 
can always reasonably anticipate a profit. But he can- 
not transform it into such products, without labor. 
Hence, as incessant and imperative as is the demand for 
the necessaries of life, so incessant and imperative must 
be the demand of the capitalist for that labor, by means 
of which alone they are produced. If a community 
need clothing, and a capitalist have all the means for 
making clothing; and want nothing but workmen to cre- 
ate the product; just in proportion to the demand for 
clothing, will be his demand for the workman, by whose 
agency alone this demand can be supplied, and his cap- 
ital rendered profitable. 

Such being the fact, there must always be a demand 
for such labor; hence, when there is any capital, such 
labor will always bring something. The rate at which 
it will be paid at different times, and in different coun- 
tries, is next to be considered. 

We have already stated that wages are the result of a 
partnership, formed between the laborer and the capi- 
talist, in which the one receives a portion of the value 
created, in return for nis labor; and tne other the re- 



POPULATION AND WAGES. 301 

mainder, in return for the use of his capital. Both of 
these parties are equally necessary to each other. If 
the laborer could not procure work, or could not ex- 
change his labor for some value which he created, he 
must starve. If the capitalist could not create value 
from the employment of his capital, he must starve also. 
He could neither eat, nor drink, nor wear his looms, 
spinning-jennies, ships, iron, or cotton. Both, there- 
fore, come into the market on equal terms; each needs 
the product of the other; and, under these circumstan- 
ces, they will each receive either less or more, in con- 
sequence of the conditions under which the exchange is 
made. 

Every capitalist wishes to have all his capital united 
with labor ; since, that which is not thus united, will be 
useless to him ; nay, it will generally diminish in actual 
value. On the other hand, in a given state of the arts, 
the labor of a single man can be applied to but a given 
amount of capital. Hence, the number of laborers 
whom any single capitalist will require, will be in pro- 
portion to the amount of his capital. If a capitalist of 
ten thousand dollars require ten laborers, one of one 
hundred thousand dollars will require one hundred labor- 
ers. And so, in general, the greater the amount of 
capital employed in a country, the greater, of course, 
will be the number of laborers employed. 

As now, every capitalist will wish to employ all his 
capital, if the number of laborers be insufficient to sup- 
ply the demand, there will be a competition among cap- 
italists, for laborers, and they will offer higher wages; 
that is, rather than have any portion of their capital use- 
less, they will offer a larger share of the profits to the 
laborer. The first class of workmen will be all em- 
ployed at a high price, and a portion of the second class 
will be raised one grade, in order to supply the demand. 
The second class will, then, be still more insufficient to 
supply the demand for their description of labor, and 
their wages will rise, and the increased deficiency be 
supplied from the third class. And, at last, those who 
were before employed only at simple labor, will be 
26 



302 POPULATION AND WAGES. 

taught and employed in educated labor; and thus the 
whole class of workmen will be raised one grade in labor 
and in wages. 

And the reverse will take place in the opposite case. 
Suppose the number of laborers be too great to be 
employed by the existing amount of capital. A capital- 
ist, whose capital will occupy but one hundred, cannot 
employ one hundred and fifty laborers. Hence, there 
will be a competition among laborers for work. After 
as many of the first class have been employed as are 
needed, there will remain a portion of them out of work. 
These must fall into the second class, and receive the 
second rate of wages. This will cause an excess still 
greater in the second class; their wages will fall, and a 
greater number will fall into the third class. The low- 
est class will thus be supplied from the classes above it, 
and it must betake itself to simple labor, or labor of the 
cheapest kind. While many of those whose only sup- 
port is derived from simple labor, must be out of em- 
ployment, either wholly or in part; that is, the whole 
class of laborers will fall one grade, and their wages will 
depreciate in proportion. Hence, we see, that, at any 
given time and place, the demand for labor, and the 
wages of labor, will be in the proportion to the ratio that 
the active capital of a country bears to the number of 
laborers in that country. 

But provision has been made, in our physical consti- 
tution, for the rapid increase of the human race. It is ca- 
pable of doubling, once in twenty-five years, as it is seen 
to be the case in the United States. And provision is 
also made for the rapid accumulation of capital. The 
earth, every year, if it be properly tilled, and if capital 
be properly employed, produces more than its inhabit- 
ants consume. This surplus may be turned into fixed 
capital, and may thus give employment to a larger num- 
ber of laborers. Hence the average rate of wages in 
any country for a number of years taken together, must 
depend upon the ratio which the annual accumulation of 
capital in any country, bears to the annual increase of 
human beings. If wages be high, and capital increase 



POPULATION AND WAGES. 303 

as fast as the human species increases, wages will for 
any period that may be contemplated, continue as they 
are at present. If wages be low, and capital does not 
increase faster than the human race, they will continue 
low. If the increase of capital be more rapid than ihe 
natural increase of the human race, wages, however 
high, will rise, until they be so high that the production 
can yield no profit. The deficiency would then be sup- 
plied by foreigners, who would immigrate to the more 
favored country. If the increase of capital be less 
rapid than that of the human race, the price of wages 
will fall, distress in the working classes will ensue, and 
they must either emigrate or starve. 

If this be so, it will be evident that the laws regulat- 
ing wages depend upon circumstances beyond the power 
of capitalists or laborers. The rich cannot refuse to 
employ laborers without loss, and the workman cannot 
refuse to labor without loss. And the competition 
which naturally exists, in a free country, is all that is 
necessary to bring wages to their proper level ; that is, 
to all that can be reasonably paid for them. Hence 
combinations among capitalists or laborers are not only 
useless, but expensive, and unjust. They attempt to 
change the laws by which remuneration is governed, 
and they must, by consequence, thus be useless. They 
expose capital and labor to long periods of idleness, and 
thus are expensive. They assume the power of depriv- 
ing the capitalist of his right to employ laborers, and the 
laborer of his right to dispose of his labor to whomso- 
ever and on what terms soever he pleases, and hence 
they are unjust. And combinations of this kind are as 
unjust when undertaken by the rich as by the poor. 

Hence we see, that the prosperity of a nation does 
not depend simply upon the absolute amount of its capi- 
tal, but upon the ratio which its capital bears to its pop- 
ulation, and the ratio which is maintained between the 
increase of both. If the increase of capital be so rapid 
as to allow the simple laborer sufficient wages to support 
and rear as many children as, under ordinary circum- 
stances, form a human family, there will be no distress 



304 POPULATION AND WAGES. 

in any class ; all will be well supported ; there will be 
no beggars from necessity ; and every one will enjoy 
the advantages arising from his skill and his education. 
If the increase of capital be more rapid than this, 
every one will have, besides support and maintenance, 
many of the conveniences of life ; and a large proportion 
will be continually rising from a lower to a higher grade 
of employment. When the increase of capital is less 
rapid than the ordinary increase of the human race, there 
will be, in the lowest class, continual distress ; children 
will die in great numbers ; the average duration of hu- 
man life will be shortened ; and many persons will be 
sinking from the higher into the lower grades of employ- 
ment and comfort. 

The former seems to be the condition of this coun- 
try. Here distressing poverty, or poverty which short- 
ens life, except it arise from intemperance, or from some 
form of vice or indolence, is very rare. The common 
laborer, if industrious, virtuous, and frugal, may not only 
support himself, but, in a few years, accumulate a valua- 
ble little capital. And notwithstanding the great immi- 
gration of foreigners, the wages of labor are annually 
rising. Hence, it is evident, that the increase of capital 
more than keeps pace with the natural and imported in- 
crease of the human race. 

In Ireland, the case is reversed. There, the lowest 
classes are, and have been for a long period, in the most 
abject poverty. Multitudes of them are said to die, 
annually, of famine. He is considered in tolerable 
circumstances, who is able to furnish his family with a 
hovel, with one full meal of potatoes a day, and with a 
sufficient supply of straw to be spread upon the earthy 
floor for bedding. The reason I suppose to be, that, in 
addition to the deplorable ignorance of the people, the 
land is owned in England ; and the rents, collected by 
rapacious underlings, is annually carried away and spent 
in England, instead of being turned into fixed capital in 
Ireland. Hence, the annual increase adds but little to 
the capital of the country ; and the people must starve 
or emigrate. 



POPULATION AND WAGES. 305 

This subject illustrates the connexion between capital 
and population. Population always follows capital. It 
increases as capital increases ; is stationary when capital 
is stationary ; and decreases when capital decreases. 
And hence, there seems no need of any other means to 
prevent the too rapid increase of population, than to se- 
cure a correspondent increase of capital, by which that 
population may be supported. 

Several conclusions naturally belong to this part of 
this subject, to which it may be proper in this place to 
allude. 

1. If the above reasonings be correct, we see the 
great importance, both of individual and national frugali- 
ty. It is, by many persons, supposed, that luxury and 
expensiveness in individuals are specially useful to the 
poor ; and that economy and frugality are injurious to 
them. We see, however, that nothing could be more 
evidently erroneous. He who consumes upon horses, 
and dogs, and equipage, ten thousand dollars* worth of 
value, is annually putting out of existence a value, 
which, if united with industry, might support several 
families in comfort ; and he is thus rendering it impossi- 
ble, that so many can be supported. He who saves 
this sum by frugality, and invests it in some profitable 
enterprise, employs the persons whom it will support the 
first year ; and, by so doing, is enabled to support a 
larger number the next year, and so on indefinitely. 
The one is destroying, forever, a fund for the support 
of industry ; the other is annually rendering that fund 
larger and more productive. 

2. The same is true of nations. The annual revenue 
of a nation, must of course be derived from the annual 
revenues of the people. If a man, this year, pay one 
hundred dollars in taxes, he has precisely ninety dollars 
less to unite with the industry of the next year, than he 
would have, if he paid only ten dollars. And thus, if 
the annual expenditures of a nation be fifty millions, 
these fifty millions are just so much abstracted from the 
fund which has been collected during that year, for the 
purpose of supporting the addition which this year has 

26* 



306 POPULATION AND WAGES. 

made to the number of the human race. If the whole 
revenue of the nation were barely sufficient to employ 
and support the annual increase of its inhabitants, those 
who would have been supported by these additional fifty 
millions, must perish. Such is the natural and necessa- 
ry result of national prodigality. 

I do not, however, by any means intend to assert, 
that taxes are unnecessary. A government necessarily 
involves expense. And, if the government be w-ell ad- 
ministered, no mode of expenditure yields a richer or 
more valuable product than taxes. What I have to say, 
is merely this ; that while all the expense necessary to 
good government should be met, and met cheerfully and 
liberally, yet expense beyond this is a benefit to no one ; 
it diminishes the comforts of all, and destroys the lives 
of multitudes. Hence, we see the evil of any form of 
government, which, by necessity, involves great and un- 
necessary expenditure. Hence, also, the evil of laws 
of entail, and of all other arrangements by which im- 
mense amounts of capital are accumulated in the hands 
of single individuals, or of families, in perpetuity. In 
this manner, the annual productiveness of a country is 
greatly decreased, and, in consequence, the annual reve- 
nue of the whole, is by the difference lessened. 

3. Of all the modes of national expenditure, the most 
enormous is that of war. In the first place, the ex- 
pense of the munitions of war is overwhelming. In the 
next place, the most athletic and vigorous laborers must 
be selected for slaughter. Of these the time and labor 
are wholly unproductive. The operations of industry, 
in both belligerent nations, are thus greatly paralyzed. 
The destruction of property, in the district through 
which an army passes, is generally very great. All this 
must be taken from the earnings of a people; and is so 
much capital absolutely destroyed, from which multi- 
tudes might have been reared, and have lived in pros- 
perity. * 

* To illustrate the vast expenditure of war, 1 here insert an esti- 
mate of the expenses of some of the latest wars. I do not vouch for 
its entire accuracy, but, I presume, it will be found, in general, cor- 



POPULATION AND WAGES. 307 

If the considerations which have been adduced above 
be correct, there is no need of seeking any further for 
the cause of that distress among the lower classes, of 
which we hear so frequently in Europe. If the capital 
which a bountiful Creator has provided for the suste- 
nance of man, be dissipated in wars, his creatures must 
perish for the want of it. Nor do we need any abstruse 
theories of population, to enable us to ascertain in what 
manner this excess of population may be prevented. 
Let nations cultivate the arts of peace. Let them re- 
duce the unnecessary expenses of governments. Let 
them abolish those restrictions which fetter and dispirit 
industry, by diminishing the inducements to labor. Let 

rect. It is from one of the publications of the Peace Society, and 
seems to be made up from authentic documents. 

GREAT BRITAIN. 

War expenses, for the year 1815, . . . £54,317,7(17 

Interest on debt, for that year, ..... 6,200,000 

£60,517,71.7 
Military and naval expenses, for 1818, . . . 15,155,000 

Difference of the two years, ..... 45,362.70? 

Equal to . . . . - • $ 201,362,89c! 



Military expenses for 1809, . ' . . . francs 656,500,000 
Contributions on foreign nations, .... 330,000,000 



Total, 986,500,000 

In 1817, the military expense wa3, .... 228,000,000 

Expense of one year's war, ' . . . . . 758.500,000 

Equal to . . . . $ 142,218,750 
The estimated cost to Great Britain, of twenty-two 

years' war £720,000 000 

Equal to . - $ 3,200,000,000 

War expense for France, fir same period, . . . 3,130,000,000 

Austria, about . . . 2,000.000,000 

Three years' war of the United States, . . 120,000,000 

8,450,000,000 
Expense of other European powers, . . . 4,559,000,000 

13,000,000,0C0 

This is nothing but the national expense, without estimating the 
prodigious and incalculable losses to individuals. 



308 POPULATION AND WAGES. 

them foster the means by which the productiveness of 
labor may be increased, and the annual gifts of the Cre- 
ator will so accumulate, that the means will be provided 
for the support of all the human beings that are annually 
brought into the world. As soon as this accumulation 
bears a suitable ratio to the number of inhabitants, we 
shall hear no more of the evils of excess of population. 
It is vain to throw away the food of a million of people 
in a single day, and then be astonished that a million of 
people are starving for the want of it. 

Hence we learn the economical evils of every form 
of vice ; as, for instance, of intemperance. The 
money spent in intemperance, is so much absolute waste 
of capital. This is, of itself, in most civilized coun- 
tries, enormous. But, besides this, it unfits the individ- 
ual for labor ; it is the author of numerous diseases, 
both in parents and in children. It is the cause of al- 
most all the crime and pauperism in the community. 
All these together, if they could be correctly estimated, 
would form a total amount which would seem almost in- 
credible ; and they are altogether exclusive of that loss 
of social, intellectual, and moral happiness, which re- 
sults from this vice. 

To sum up what has been said. We see that the 
demand for the labor employed in the production of the 
necessaries of life ; and, of course, the wages of labor, 
must be in proportion to the ratio which the amount of 
capital in any given community, holds to the number of 
laborers ; and to the ratio which the accumulation of 
capital bears to the increase of the human race. And 
these being at any time fixed, wages will rise or fall, as 
this ratio varies. If capital be increasing more rapidly 
than human beings, wages will rise. If it be not in- 
creasing so fast, wages will fall. And if, from any sud- 
den change in the affairs of a country, this ratio be sud- 
denly affected, wages will be affected accordingly. 

II. I now come to consider that sort of labor, which 
requires special and expensive education, and some pe- 
culiar natural endowment ; such, for instance, is the 
labor which is bestowed upon the fine arts, and which is 
employed in some of the professions. 



LABOR IN THE FINE ARTS. 309 

1 . The desire for this labor varies with the age of a 
society. In the beginnings of a nation, when every one 
is interested in providing the means of subsistence, there 
is little time or capital to spare for the cultivation of a 
taste for the fine arts. And, at a yet more advanced 
period, when wages for labor are universally high, and 
every one may reasonably cherish the hope of attaining 
to independence, the love of gain is too absorbing a pas- 
sion to allow of the development of any habit that does 
not conduce to pecuniary acquisition. It is only in the 
later and more advanced stages of society, where hered- 
itary fortunes have been built up, and where accumulated 
property gives opportunity for leisure and refinement, 
that much desire is manifested for those productions of 
the fine arts, which are considered the offspring of the 
rarest and most highly gifted talent. 

2. The ability to gratify this desire, depends also 
upon the form of social organization. The productions 
of the fine arts are generally very costly. Hence, 
where property is nearly equally divided, where no one 
is poor, though no one may be exorbitantly rich, such 
productions could have but few purchasers. Whether 
wages were high or low, whether there were no beggars 
or whether there were ten thousand beggars, would have 
no effect upon the probability of the sale of a statue, 
which cost one hundred thousand dollars. The demand, 
is of necessity, limited to the wealthy ; and that form of 
social organization which is most favorable to the accu- 
mulation of large estates, and to the retaining of them 
in the hands of single individuals, will always be most 
favorable to the cultivation of the fine arts. In this 
country, where we have few beggars, and where, but for 
intemperance and vice, we should have none, a first-rate 
sculptor or painter would starve. In many of the coun- 
tries of Europe, where the poor are frequently famish- 
ing, and where a large proportion of the population are 
beggars, you may frequently find, in the gallery of a 
single gentleman, a finer collection of paintings, than 
could be made from all the pictures in the whole United 
States. Hence, I think that the prospect for the arts, 
in this country, is by no means encouraging. 



310 CAUSES OF DIFFERENCE OF WAGES. 



SECTION II. 

OF THE SPECIAL CIRCUMSTANCES BY WHICH, IRRE- 
SPECTIVELY OF THE INFLUENCE OF CAPITAL, THE 
WAGES OF LABOR ARE AFFECTED. 

In the preceding section, I have endeavored to show 
in what manner wages, or the price of labor, are affected 
by capital. The general principle there illustrated, is, 
that wages will be high, when the proportion of capital 
to labor is great ; and low, when the proportion of cap- 
ital to labor is small : and that wages will be rising or 
falling, as this proportion of capital to labor is increasing 
or diminishing. On this principle, I suppose that the 
difference of wages, in different countries, under the 
same physical conditions, may be explained. 

The same principle may be carried a step further. 
Whenever, in any country, capital is removed from one 
kind of employment to another, the wages, in that form 
of labor to which capital is transferred, will be raised. 
Thus, if a people find it for their interest to employ their 
capital in manufactures, instead of navigation, the wages 
of manufacturers will rise, and those of sailors will fall. 
This will continue, until the demand for manufacturing 
labor is supplied. But, when the current is once set in 
any direction, it frequently continues to move, after the 
force which was originally applied, has ceased. Hence, 
it will frequently happen, that a change of this sort will 
abstract from navigation too large a number of labor- 
ers, so that there will not be a sufficient supply to meet 
even the diminished demand. In this case, the wages 
of seamen will rise again, somewhat above the proper 
average. 

But, supposing all these circumstances to be adjusted, 
there will yet remain others of a different kind, to affect 
the wages of labor. We do not find that the wages of 
all laborers are the same, whether labor be high or low, 
and whether the productiveness of labor be great or 



CAUSES OF DIFFERENCE OF WAGES. 311 

small. A. captain receives higher wages than a sailor ; 
a master manufacturer, higher wages than his journey- 
man ; and a merchant, higher wages than his clerk. 
The circumstances which cause these differences, re- 
main now briefly to be noticed. 

1. The price of labor is affected by the ease or diffi- 
culty, the pleasure or pain, of the employment. 

When the employment, for instance, requires great 
muscular effort, the number of persons who can accom- 
plish it, is comparatively small. This diminishes the 
supply, and, of course, increases the price. When 
this is the case, as men are not usually attracted by the 
prospect of hard labor, a smaller number apply for this 
kind of employment. This still further diminishes the 
supply. Hence, the price will rise, as the wages must 
be increased sufficiently to overcome this repugnance. 
On the contrary, when the labor is easy, the number of 
persons, both able and willing to perform it, is in- 
creased ; thus, the supply is large, and wages fall in 
proportion. 

The same effect is produced by the general estima- 
tion of the pleasantness or unpleasantness of the em- 
ployment. Any kind of industry, which, from necessity, 
is uncleanly, commands higher wages than one which 
can be performed without interfering with personal neat- 
ness. One which is considered disgraceful, can be 
supplied with laborers, only by paying an unusual price. 
The business of a public executioner, though not diffi- 
cult, is disagreeable, and generally considered disgrace- 
ful ; and hence, in countries where it is made a distinct 
profession, it commands high wages. The labor in the 
learned professions, is considered honorable ; and, there- 
fore, it is less highly recompensed than the same degree 
of labor and skill in other employments. 

2. Wages are affected by the skill required in per- 
forming the operation. This arises from two circum- 
stances : First, skill can be acquired only by practice 
and education. This, as has been explained, is in itself 
costly, and is an investment, for which the possessor 
justly receives an emolument. And, secondly, unusual 



312 CAUSES OF DIFFERENCE OF LABOR. 

skill, generally supposes some unusual endowment. But 
in proportion to the rarity of the endowment, must be 
the smallness of the supply, and, of course, the rise of 
price which must be paid for the product. 

3. The confidence reposed. Wherever a great amount 
of capital is employed, it must, to a very considerable 
degree, be placed in the power of some one or more 
agents. Hence, if this power be abused, or used un- 
wisely, the whole is liable to be lost. If the manager 
be careless, be may destroy it by negligence ; and if he 
be dishonest, he may convert it to his own emolument. 
Now, this union of judgment with incorruptible integrity, 
is absolutely necessary in many of the operations of pro- 
duction. But, such a union is rarely to be found. 
Hence, while the demand is imperative, the supply is 
small. On this account, though the wages of such per- 
sons are high, it is generally found more economical to 
employ them, at any price, than to intrust important af- 
fairs to the incompetent and the vicious. This is one 
of the rewards, which, in the course of human events, 
God bestows upon wisdom and virtue. 

4. Certainty or uncertainty, constancy or inconstancy 
of employment. Division of labor requires that a man 
devote himself exclusively to a single employment, and, 
therefore,. that his whole emolument be derived from that 
employment. Hence, when the opportunities of em- 
ployment are rare, the wages for each particular opera- 
tion must be greater ; since we must pay, not only for 
the time actually employed, but also for that time which 
is lost to the laborer, while waiting for employment. 
We pay more money for riding a mile in a hackney- 
coach, than for riding the same distance in a stage- 
coach ; because the hackney-coachman may stand half 
a day in waiting, before he finds another customer. For 
the same reason, although horse keeping is higher in the 
city than in a country town, you pay less money for 
coach hire in the former case, than in the latter, because 
of the greater steadiness of the employment. Thus, 
also, when a trade can be exercised for only a part of 
the year, as in the case of a brick-layer, you pay to the 



CAUSES OF DIFFERENCE OF LABOR. 313 

laborer higher wages ; because he must receive enough 
to compensate him for the time in which he is obliged to 
lie idle. 

5. Another circumstance which affects the price of 
wages, is the certainty or uncertainty of success. In 
most of the ordinary avocations of life, if a man acquire 
the requisite skill, he will invariably find employment. 
In the professions, it is not so. Those who have pre- 
pared themselves at great expense for the practice of a 
profession, unable to find employment, sometimes relin- 
quish it for another pursuit. When such a risk exists, 
the wages of labor should be greater ; for the laborer is 
entitled to a remuneration for the risk of this loss of time 
and of capital. 

These, I believe, are the principal circumstances on 
which, irrespectively of the influence of capital, the 
price of labor depends. It will be at once seen, that 
they are susceptible of very great variety of modifica- 
tion, and combination ; and that, frequently, several of 
them must be taken into the account, in order to explain 
the reason of the high or low price of any particular 
form of labor. I think, however, that by such combi- 
nation, the various phenomena of wages may be gener- 
ally explained. 

The preceding remarks are intended to apply to those 
cases, in whicli the individual is supported wholly by 
his own labor. When an individual, or a class of in- 
dividuals, have any other means of support, the price 
of labor, of course, falls, and can be subjected to no 
general rule. Thus, a large portion of the laboring 
class of females are supported, in part, by their rela- 
tives ; some of them receiving house-rent, others, both 
house-rent and food, for nothing. Hence, they are en- 
abled to labor for a price, far less than the actual cost. 
This is one reason why the price of female labor, espe- 
cially of that labor which requires but little skill, and 
which can be done at home, is so low. Another rea- 
son is, that the customs of society restrict the modes of 
production in which female labor may be employed. 
Hence, in these modes of production, the supply of la 
27 



314 CAUSES OF DIFFERENCE OF LABOR. 

Dor is greater than the demand. Hence, also, the es- 
tablishment of a manufactory, or the introduction of any- 
kind of labor, which furnishes a new mode of female 
employment, advances the price of female labor. This, 
also, is the reason why the labor performed in nunneries, 
monasteries, and state prisons, is sold below the market 
price. The fact is, that the laborers are supported, ei- 
ther in whole or in part, by a separate fund ; and hence, 
there is no natural price for their products, since it is 
not regulated by the cost. 



315 



CHAPTER SECOND. 

THE PRICE OF MONEY, OR INTEREST, 



SECTION I. 
OF THE BENEFIT OF CAPITAL TO THE LABORER. 

Having, in the preceding chapter, endeavored to il- 
lustrate the principles which regulate the rate of wages, 
we now proceed to illustrate those which regulate the 
rate of interest, or the price of capital. 

We have already stated, that when two persons were 
engaged in creating a product, a part of the profit be- 
longed to the labor, and a part to the capital. Let us 
first consider the benefit of capital to the laborer. 

Suppose a laborer to be endowed with health, and 
also with skill sufficient to perform an operation in any 
mode of production. His power is made up of two 
things ; first, mere muscular force ; and, secondly, skill. 
By the one, he is enabled to exert mere brute force, as 
in lifting, carrying, or drawing. By the second, he is 
enabled to avail himself of the use of natural agents ; 
for skill in production is little else than this ability. But 
it is evident that his labor of the first kind, is vastly less 
productive than that of the second kind, as the simple 
labor of a man's hands is less productive than that labor 
which is employed in directing the agents of nature. 

Suppose, now, a man entirely deprived of the use of 
capital ; his labor must be wholly of the first kind ; of 
course, it must be of the least productive quality, and it 
must earn the lowest rate of wages. Suppose a black- 
smith, of ever so great skill, destitute of forge, hammer, 
anvil, and of all his tools, and also of iron upon which to 



316 BENEFIT OF CAPITAL TO THE LABORER. 

employ them ; he can, in no manner, avail himself of his 
skill, or of the use of the natural agents with which he 
is acquainted, and he must either perish or else earn his 
livelihood by simple labor ; that is, by the putting forth 
of mere brute force, without any benefit from his skill, 
though it be ever so great. But, let some one loan him 
a shop and tools, with iron and coal sufficient to carry 
on his business, and he can, at once, avail himself of 
his skill ; that is, of the use of those natural agents, 
with which he is acquainted. His labor will now be- 
come vastly more productive ; that is, he can, in a given 
time, create a vastly greater amount of value than be- 
fore, and will, of course, receive a much larger recom- 
pense. If his simple labor were worth one dollar per 
day, his labor and skill will now probably be worth at 
least two dollars ; that is, the capital which he uses, has 
at least doubled his wages. This, at the rate of three 
hundred working days in a year, would be equal to three 
hundred dollars, which he receives for the use of the 
capital which was loaned to him. Suppose that this 
capital were worth, originally, five hundred dollars ; and 
that he paid for the use and wear and tear of it, ten per 
cent, per year; he might then pay fifty dollars for the use 
of it, and have two hundred and fifty dollars nett profit, 
over and above the wages which his simple labor could 
earn. In two years, he might, besides paying the inter- 
est, pay for the whole capital, and thus own it himself. 
He would then be entitled to all the profit derived 
from the three several sources : first, his labor ; second- 
ly, his skill; and, thirdly, the use of the capital, upon 
which his labor was employed. 

I have, in the above case, supposed the laborer to 
borrow the shop, tools, and materials. This is not the 
ordinary way in which capital is borrowed. It is much 
more common, and much more convenient for him, who 
wishes to borrow the capital with which to employ his 
skill, to borrow it in the form of money, which he im- 
mediately transforms into that kind of capital, which his 
occupation requires. Hence, contracts of this kind are 
always estimated in money. And hence, interest is 



BENEFIT OF CAPITAL TO THE LABORER. 317 

commonly called the price of money. It is evident, 
however, that it is not the money, but the capital, which 
is wanted ; because, as soon as the man obtains the 
money, he at once exchanges it for capital. This, 
therefore, should always be borne in mind, that when we 
speak of the price of money, we mean the price of cap- 
ital, for which the money is always exchanged. 

Hence we see, that the laborer may derive very great 
benefit from the loan of money ; that is, of capital. He 
is thus enabled to employ, advantageously, all his skill: 
and thus, a loan for a few years is very frequently the 
commencement of a fortune. And hence we see, as we 
have said before, how very absurd is the prejudice so 
commonly excited against money-lenders, and money- 
lending institutions. Were there no money-lenders, 
there could be no money-borrowers ; and were there no 
money-borrowers, the industrious artisan would surely be 
the greatest sufferer. It is not denied that the money- 
lender, loans for his own advantage. But, I do not see 
why it is any more odious for one man to lend for his 
own advantage, than for another man to borrow for his 
own advantage. It is not pleaded, that the one, any 
more than the other, is benevolent. This is quite anoth- 
er question. All that is pleaded is, that both, in so far 
as the things themselves are concerned, are equally hon- 
est and honorable. In both cases, the man benefits 
himself while he benefits others ; and this is all that can 
be said in favor of any other exchange. It is not, of 
course, denied, that the lender may be oppressive, ty- 
rannical, and avaricious ; nor that the borrower may be 
fraudulent, indolent, and profligate. But this affects not 
the nature of the transaction per se. We here speak of 
the thing itself, and not of the manner in which either 
party may act, in consequence of or in connexion with it. 

I have stated but one form in which the laborer is 
benefited by the use of capital. Another form of sim- 
ilar advantage is equally common. 

Suppose that a village were destitute of capital, and 
that its inhabitants were therefore obliged to be employ- 
ed in simple labor, or in that which required the least 
27* 



318 BENEFIT OF CAPITAL TO THE LABORER. 

skill, and, therefore, produced the lowest wages. They 
would, consequently, be poor, and would be able to ac- 
cumulate very lrUle ; since, their whole earnings would 
be scarcely more than sufficient to provide them with 
the necessaries of life. Let, now, an opulent man 
come among them, and establish a manufactory which 
should employ every inhabitant capable of labor. Every 
one knows, that, by this means, the wages of labor would 
be doubled, and all the comforts of living would be in- 
comparably increased. The reason rs the same, in prin- 
ciple, as in the other case. The capitalist furnishes the 
materials and the tools, by which the laborer is now en- 
abled to use his skill, in addition to the simple labor, 
which he used formerly ; that is, by which he is enabled 
to labor, not with his hands, but also with the agents 
of nature. The result is, a great increase of the pro- 
ductiveness of industry ; and, of course, a much larger 
amount lhan before, becomes the portion of the laborer. 
In the division of the profits the owner receives pay- 
ment for the use, wear and tear, and risk of his instru- 
ments, for the use and risk of his material, and for his 
own labor and skill in supervision, if he superintend ; or 
for the labor and skill of another, if he does it by a 
deputy. The workman receives payment for his labor 
and for his skill, according to the principles illustrated in 
the preceding chapter. We see, that, in this case, the 
laborer is as truly benefited by the use of capital, as in the 
former. The only difference is, that here he receives 
payment only for labor and skill ; and there he received 
payment for the use of capital, deducting the rate of in- 
terest and the risk of loss. It will be easy to apply the 
principle here illustrated to other cases. When a mer- 
chant borrows capital, he is thus enabled to use his skill 
in exchange. Hence, the use of capital, makes the dif- 
ference between his wages as a merchant, and what his 
wages would be, were he a common laborer. And so 
of any other case. 

Hence, we see how incorrect is the notion frequently 
advanced, that when property is destroyed by fire or 
flood, or in any other manner, it is of no consequence 



OF RISK OF INVESTMENT. 319 

to the community ; since it was nothing but the posses- 
sions of the rich. The rich may, or may not, suffer in 
their comforts and conveniences, by such a loss ; but the 
poor always must suffer. The very means by which 
their wages are raised from those of simple to those of 
skilful labor, from the wages of labor with their hands 
alone, to the wages of labor with the agents of nature, is 
thus taken away. Remove capital, and they have noth- 
ing to offer in exchange, but mere physical force. 
Hence, it is always to be remembered, that, in the de- 
struction of property, the poor are always the greatest 
sufferers. 

It is evident, then, that capital loaned, should be paid 
for. Interest is no extortion, and no unreasonable de- 
mand. It is for the advantage of the skilful laborer to 
borrow it, at a reasonable interest, as much as it is for 
the advantage of the capitalist to loan it ; and it is as 
much for the advantage of the laborer as the capitalist, 
to enter into that partnership, by which they share the 
profits of the operation between them. It is by reason 
of this partnership, as I have said, that the laborer re- 
ceives the wages of skill, instead of the wages of mere 
physical force ; and the capitalist is able to employ all 
his capital in production, instead of employing only that 
portion of it, which he could employ with simply his 
own personal industry and skill. 

We next proceed to consider the circumstances which 
vary the rate of interest at which capital may be borrow- 
ed. These, I suppose to be three, viz: 1st. Risk; 
2d. Convenience of Investment ; and, 3d. Productive- 
ness of Capital. 



SECTION II. 

OF RISK AND CONVENIENCE OF INVESTMENT. 

I. Of Risk. When a man loans his property to 
another, there is always a risk of his never being repaid. 



320 OF RISK OF INVESTMENT. 

Now, the greater this risk, the greater will be the inter- 
est which a capitalist may justly demand. He who 
would loan to one man, at six per cent., when he was 
sure of being repaid, would not, surely, loan to another 
man, at the same rate, when there were fifty chances in 
a hundred, that he would lose both principal and inter- 
est. At any rate, he who did so, would very soon 
cease loaning altogether. 

This risk depends upon several circumstances. Of 
these, the principal are : the nature of the employment ; 
the character of the borrower ; and the character of the 
government. 

1. There is a difference in risk, arising from the dif- 
ferent modes of employing capital. For instance, prop- 
erty at sea, is more liable to destruction than property 
on land. Hence, the ancient Athenians made a differ- 
ence between land and marine interest. The former 
was at twelve, and the latter as high as sixty per cent, 
per annum. Property in merchandise is more liable to 
be destroyed, than property in houses ; property in 
houses, than property in farms. A house in the country, 
is safer than a house in town ; and a stone house is safer 
than a wooden house. Property employed in the man- 
ufacture of cotton, is less liable to be destroyed than 
property employed in the manufacture of gunpowder. 
Now, when a capitalist loans property to be invested in 
some one of the above forms of capital, and his only se- 
curity for payment consists in his hold upon the property 
in which it is invested, it is evident that his risk, other 
things being equal, will depend upon the safely of that 
property. Hence, it is reasonable that his remuneration 
for risk, should correspond with the greatness of that risk. 
2. The second circumstance which enters into risk, 
is the personal character of the borrower. This is 
made up of industry, skill, knowledge of business, pe- 
cuniary ability, and moral character. When these have 
not been tested, or where, having been tested, they have 
been found insufficient to the safe conduct of business, 
there will be a correspondent indisposition in his neigh- 
bors to loan ; because, every one feels that there is, in 



OF RISK OF INVESTMENT. 321 

such a case, more than a usual risk. Hence, such an 
individual cannot borrow, unless at an advanced pre- 
mium, or at a higher rate of interest. On the contrary, 
if a man have conducted an extensive business, for a 
long period, with undeviating success, he attains to a 
high mercantile credit, and is enabled to borrow money 
at the lowest rates. But, if a merchant be known to 
be frequently embarrassed ; if he have ever, or specially 
have more than once, failed ; mercantile confidence in 
him is destroyed. No one will lend him, except on the 
most unfavorable terms ; hence, he can do business with 
nothing but his own capital, and, of this, he is generally 
destitute. Hence, a failure, and specially a second fail- 
ure, is commonly fatal to mercantile success. Firm 
credit is rarely afterwards established. 

I am aware that these two causes of variation of risk, 
are apparently modified, by the practice of endorsing 
private notes. If I want money for the most hazardous 
investment, or am of the most doubtful credit, if I can 
offer my note, endorsed by persons of established mer- 
cantile character, it is raised, at once, to par ; that is, 
the extra risk is immediately removed. But this modifi- 
cation is only apparent. The endorser will rarely do 
this for nothing. He either himself receives a premium 
for it, directly ; that is, he is paid for taking the risk of 
default of payment ; or else, two persons mutually en 
dorse for each other, and thus, the risk which A assumes 
for B, is paid for, by B's assuming a similar risk for A. 
It is singular, that anyone should ever ask another to en 
dorse his note merely as a matter of comity. It should 
always be a matter of business, and liable to be paid for, 
like any other business transaction. A merchant should 
no more ask another to endorse his note gratuitously, 
than he should ask him to insure his house gratuitously. 
The nature of the transaction is precisely the same 
The risk in the one case, is frequently as great as in the 
other ; and it should always, as much in the one case as in 
the other, be a matter of compensation. Such, at least, 
seems to me to be the nature of the case. 

3. The risk incurred in lending capital, is affected 



322 OF RISK OF INVESTMENT. 

by the character of the government. This affects bo.'.h 
private and public contracts. 

If justice be well administered, and every man have 
all reasonable security that he will have the whole power 
of the society at his disposal, in order to enforce a just 
contract ; of course, the risk is less, and the rate of in- 
terest lower, than when experience has shown, that no 
such security exists. Hence, we see the economy of 
good legislation, and of a wise, just, and incorruptible 
Judiciary. The additional interest on capital, incurred 
in consequence of the bad administration of justice in a 
country, would annually pay the expenses of all the 
courts of law, ten times over. 

The same results flow from confidence, or the want 
of confidence, in the stability of a government. A rev- 
olution not unfrequently dissolves contracts, dissipates 
security, and renders obligations valueless, both by de- 
stroying the evidence of their existence, and annihilating 
the means of enforcing them. Hence, when such an 
event is feared, men will not loan, except at an exorbi- 
tant premium ; and they generally prefer removing their 
property to some other country, to subjecting it, for any 
premium whatever, to the risks of a revolution. 

The same may be said of public contracts. Govern- 
ments, in whose stability undoubted confidence is repos- 
ed, borrow the most enormous sums, at the lowest rates 
of interest. Those, which are in daily danger of being 
overthrown, can scarcely borrow at all, or, if they do 
borrow, it is at the most ruinous premium. The South 
American governments can scarcely borrow at any in- 
terest. Great Britain, notwithstanding her present enor- 
mous debt, borrows at three or four per cent., to any 
amount she pleases. Nay, so great is the public confi- 
dence in her permanency and integrity, that, probably, 
there is scarcely a civilized nation on earth, which does 
not at present own some share of her national debt. 
The greater the civil commotions of other countries, the 
more easily can she borrow ; because, capitalists natu- 
rally invest their property where they are confident of its 
security ; and confident that its interest will, under all 
circumstances, be regularly paid. 



CONVENIENCE OF INVESTMENT. 323 

IT. The rate of interest is varied by the convenience 
of the investment. The convenience of an investment, 
depends upon several circumstances. 

1. Facility of transfer. When a man loans capital 
he is, of course, ignorant of the future, and does not 
know how much he may need it, at some subsequent 
time. If he loan at six per cent., for two years, he may, 
in six months, find some investment in which it would 
yield him eight per cent. ; but, having loaned it for two 
years, he cannot now withdraw it. Hence, it is a great 
advantage, if it can be so invested, that he may, without 
loss, recall it at any moment. 

2. Permanency of investment. If a man does not 
wish to withdraw a loan, it is an advantage to him to 
have it continue for a long period ; because, he is thus 
saved the loss of interest which would occur during the 
time of transfer, and the trouble and inconvenience of 
finding another borrower. This is of special benefit to 
widows, orphans, persons retired from business, and all 
those persons who wish not to labor with their own cap- 
ital themselves, but only to live upon the interest of it. 

3. Punctuality in the payment of interest. It is a 
great convenience to those who invest capital, to be able 
to calculate with certainty on the payment of interest. 
They can thus, with ease, adjust their expenses, both to 
the amount of their income, and to the time of their re- 
ceipt of it. If they wish to re-invest the interest, they 
can make their arrangements with certainty ; and thus in- 
vest it with the greatest advantage. They are also saved 
the trouble of looking after their debtor, and they avoid 
the inconvenience of that personal altercation, which is 
liable to arise respecting pecuniary transactions. 

When any form of investment combines these advan- 
tages, men are found to prefer it to one which is desti- 
tute of them ; and hence, they will loan their money on 
these terms, at a lower rate of interest than on any oth- 
er. When a debt is in this form, it is said to be fund- 
ed ; and the creditors are said to hold stock. Hence, 
public debts are generally thus arranged. The various 
companies, formed for banking purposes, and purposes 



324 INTEREST DEPENDING ON PROFIT. 

of internal improvement, are constructed on the same 
principles. Everyone who contributes a certain amount 
towards the capital of such a company, receives a certifi- 
cate that he owns such a share of that capital. He is 
entitled to his portion of the profits at stated times. He 
may retain this certificate himself, as long as he pleases ; 
or he may sell it, at any moment, to any purchaser who 
may want it. Hence, money may always be borrowed, 
under these circumstances, at the lowest rates. 



SECTION IIT. 

OF THE RATE OF INTEREST, AS AFFECTED BY THE 
USE OF CAPITAL. 

When, however, the risk is the same, we find interest 
higher in some countries than in others ; and higher in 
the same country at one time than at another. Thus, 
when the security is equally good, interest is higher in 
this country than in Great Britain ; and, in this country, 
it is higher in the new, than in the older states. And, 
we also find, that it is lower now, in Great Britain, than 
formerly ; and that it generally becomes less, as a com- 
munity grows older. 

This shows that there must be causes of variation in 
interest, aside from that of risk. A few of these re- 
main to be considered. 

I, The average Profit of Capital. The profit of 
capital is that annual value which it yields to the possess- 
or, after he has deducted the principal, and paid the ex- 
penses incident to his actual operation. Thus, if, by 
the use of one thousand dollars for a year, I am, after 
replacing the principal and all the cost of my operation, 
one hundred dollars richer, this one hundred dollars is 
the profit of my capital. Now, the greater this is at 
any time, the greater will be the sum which I shall be 
willing to pay for the use of one thousand dollars. If, 



SUPPLY AND DEMAND. 325 

by the use of capital, I can, after paying all expenses, 
realize twenty per cent., I can afford to pay more for the 
use of it, than if, after paying all expenses, I could re- 
alize only five per cent. 

To specify the various causes on which the difference 
of profit of capital depends, perhaps would be impossi- 
ble. Those which seem to me of the most general im- 
portance, are : 

1. Fertility of Land. He who wished to borrow 
money to invest in agriculture, could afford to pay higher 
interest, when the land produced fifty bushels to the 
acre, than when it produced only twenty-five bushels to 
the acre, provided he could procure the land for the 
same purchase money. 

2. Productiveness of Industry. The use of natural 
agents adds greatly to the value annually produced from 
a given amount of capital. This will tend to raise the 
price of capital ; since a man will give more for money 
to invest in a machine which will produce one thousand 
dollars a year, than in one which will produce only five 
hundred dollars. It is true that the influx of capital will 
tend to bring any one branch of industry, in process of 
time, to the general level. But that progressive in- 
crease of productiveness, which belongs to the progress 
of civilization, tends to keep up the price of capital, 
which would, otherwise, fall unreasonably low. 

3. The Demand for Exchange. The greater the de- 
mand for exchange, the more profitable must be that 
capital which is invested in exchange. In a town v/here 
mercantile business is brisk, and a man can sell all his 
stock at a good profit, two or three times in the course of 
a year, money will bear a higher interest than in a town 
where exchanges are slow, and he must keep his goods 
on hand for a year or two. 

II. The Ratio between Supply and Demand. This 
produces the same effect upon the rate of interest, as 
upon every thing else. Whatever be the profit of cap- 
ital, if the supply be very small, the price will rise in 
proportion ; since he, who by employing it at a high 
price, can make a small profit, will rather so employ it, 
28 



326 SUPPLY AND DEMAND. 

than, by doing without it, make no profit at all. Thus, 
if, by the use of one thousand dollars for a year, I could 
realize five hundred dollars, I might be willing to pay 
two hundred for the use of it, rather than not to have it; 
for, in the latter case, I should gain nothing. If, then, 
there were but little capital in the market, and many 
persons were as willing to give this rate of interest as 
myself, I should be obliged to give it. But if, on the con- 
trary, there were many persons desirous of lending, and 
there was much capital in the market, and I were the on- 
ly person who would be willing to give this interest, they 
would underbid each other, and I should be able to 
procure it of him who would loan it to me at the lowest 
rate. I might then be able to borrow it for one hundred 
and fifty, one hundred, or sixty dollars per annum. 

Hence, the rate of money will vary in any country, 
according to the effect of these two circumstances. In 
a new and prosperous country, interest is always high. 
This results from several reasons. 

1. Land is very cheap, and at first is all of very near- 
ly the same market price. In many cases it can be 
had for almost nothing. 

2. Land is very fertile. The produce of a soil when 
new is generally greater than ever afterwards. 

3. The soil, never needing manure, requires but 
small investments of capital, and these are very richly 
repaid. 

4. The inhabitants of a new country can carry with 
them but few of the conveniences of life. These must 
be purchased after they arrive there, and must either be 
made on the spot, or be imported. Neither of these 
can be done without capital. And, as the demand for 
these conveniences is imperative, and as the income of 
land is abundant, the settlers are willing to pay a high 
price for them. Hence, the profit, both of mechanical 
and of commercial labor, is very great ; and the price 
which is paid for capital is very high. 

5. The inhabitants of a new country have generally 
very numerous exchanges with the aborigines. Such 
exchanges are exceedingly profitable. But these can- 



SUPPLY AND DEMAND. 327 

not be carried on without capital ; and, of couue, capi- 
tal, on this account, always bears a very high price. 

On the contrary, the supply of capital, in a new coun- 
try, is generally small. 

1. Emigrants are, by no means, the most wealthy 
classes of a community. Those who are living in peace 
and prosperity at home, are not generally those who are 
most willing to brave the perils and hardships of the wil- 
derness. 

2. Those who are not inclined to expose their persons 
to the hardships of a new country, are not inclined to 
send their capital where they are not present to watch 
over it themselves. Plence, it is difficult for a while, 
for a new people to borrow ; and they can overcome 
this difficulty only by the payment of a high interest. 

These are, as I suppose, the causes of the high rate 
of interest in new countries, on the borders of civilization, 
and, generally, wherever savage and civilized nations 
intermingle. 

As a country becomes settled, however, these causes 
begin to operate less powerfully ; and thus, the rate of 
interest gradually diminishes. 

1. The annual produce of the earth is, year after 
year, changed into fixed capital : and thus, the demand 
for capital is supplied from themselves. 

2. The fertility of the soil diminishes, so that it will 
afford to pay less interest. 

3. Land is sold at different prices, according to its 
fertility; and, as it rises in price, the degree of profit to 
the purchaser is diminished. 

4. The wants of the natives are supplied; and, hence, 
one source of gain is dried up. 

5. A more perfect knowledge of the country, and 
more perfect confidence in its prosperity, diminish the 
unwillingness of persons in older countries to loan ; 
and hence, capital from abroad, may be procured with 
greater facility. 

Hence, the gradual operation of these causes, must 
tend to reduce the rate of interest in different countries 
to the same average. 



«J28 FREEDOM OF CAPITAL. 

Hence, the constant tendency of civilization, is to the 
reduction of the rate of interest. As capital becomes 
more abundant, in proportion to the uses that are to be 
made of it, it commands a less price ; that is, a man 
can gain less than formerly with a capital of one thou- 
sand dollars; and hence, he is willing to pay a less inter- 
est for it. But it is also to be remembered, that a much 
larger proportion of men are worth one thousand dollars 
than formerly, and that for one that was worth one 
thousand dollars, fifty years ago, there are fifteen or 
twenty who are worth ten thousand dollars now ; that is, 
men, with the same labor, are able to secure as many 
or more comforts than formerly ; but they are obliged 
to do it by the use of a larger amount of capital. They 
are obliged to labor with a larger capital, but that large 
amount is as easily procured as a less amount was for- 
merly. Hence, the complaint so frequently heard of 
the increasing difficulty of accumulating property, is 
really unfounded ; and, taking the difficulty or ease of 
procuring capital into the account, the more advanced 
periods of society are as favorable as any to the industri- 
ous classes. 

III. The rate of interest is affected by the freedom 
of capital. By freedom of capital, I mean the unfetter- 
ed liberty of the individual to employ his capital in any 
innocent way that he pleases. When this liberty is en- 
joyed, every one chooses that way in which he supposes 
that he shall be most successful ; that is, in which he 
will reap the largest 'profit. The larger the profit he 
realizes, the larger will be the interest which he will be 
willing to pay. When be is obliged to withhold it from 
a mode of investment which he prefers, and to employ 
it in one which he does not prefer ; he must, therefore, 
divert it from a more to a less profitable mode of invest- 
ment. Hence, as he is obliged to employ it in a less 
profitable instead of a more profitable investment, he 
can afford to pay less interest ; and the price of interest, 
by the effect of this interference, must fall. Such must 
be the effect of all monopolies, and of all means by 
which the active power of capital is diminished. 



INTEREST AFFECTED BY TAXATION. 329 

IV. The rate of interest is affected by taxation. A 
tax, abstracts its whole amount realized, besides the 
cost of collecting it, from the annual profits of capital. 
If a mechanic realize, from a capital of one thousand 
dollars, a nett saving of one hundred and fifty dollars, 
and is obliged to pay fifty dollars of this sum in taxes, 
he is in the condition of one who, without being obliged 
to pay taxes, realized a saving of only one hundred dol- 
lars. Hence, he would be able, if he conducted his 
business upon a hired capital, to pay only a diminished 
rate of interest. And, if it be said that he may raise 
the price of his labor, and thus repay himself, it may be 
answered : 1 st. By raising the price of his labor, he 
diminishes the demand, and his profits are thereby re- 
duced, so that he will be no better able to pay the inter- 
est in question. And, 2dly, as other men being taxed, 
will raise their prices, he is obliged to pay more for 
every thing that he consumes ; and thus, again, his abil- 
ity is lessened. Every one must see, that the immense 
sum which Great Britain annually pays, as the interest of 
her national debt, is so much abstracted from the profits 
of her capital ; and that the amount of profit to the indi- 
viduals must be greater, just in proportion as that is 
diminished ; and that the profits of the capitalist and the 
producer would rise accordingly. 

From what has been said above, we come to the fol- 
lowing general conclusions : 

1. That, other things being equal, interest will be 
high when the risk is great ; and low, when the risk is 
small. 

2. That interest will be high, when the profit of capi- 
tal is great ; and low, when the profit of capital is small. 

3. That both of these affect each other, within cer- 
tain limits ; that is, when profit is great, if the risk be 
also great, interest will be very high ; because the in- 
crease of risk diminishes the supply. 

4. But, when profit is low, and risk is great, there 
will be no loaning whatever ; because, what is paid for 
risk, will be more than can be gained by use, and, hence, 
men could not profit by borrowing. 

28* 



330 OF LEGAL RATE OF INTEREST. 

5. And, hence, we see that the rate of interest will 
be always affected by every circumstance, which affects 
either risk or profit of capital. War, or the rumor of 
war, by increasing' the risk, raises the rate of interest in 
property affected by it. In property not affected by it, 
the same cause depresses the rate of interest ; because 
it diminishes the means and opportunity for produc- 
tion, and, of course, diminishes the profit of capital. 
On the other hand, the discovery of any new mode of 
profitably employing capital, raises the rate of interest, 
by creating an increased demand for capital. 

6. And hence, again, we see that the rate of interest, 
at any particular time or place, is not of itself any indi 
cation of the prosperity, or of the decline of a country. 
The indication is to be sought for, not in the rate of in- 
terest, but in the cause by which that rate is affected. 

1. Whenever the rate of interest is raised by in- 
crease of risk, this is an indication of adversity. Rise 
of interest, from such a source, benefits no one. It is 
of no service to the lender, because he derives no profit 
from that part of the premium which insures him against 
loss. It is as profitable for him to loan for five per 
cent, without risk, as to loan for ten per cent., when 
five per cent, is for risk, and five per cent, for use. It 
is an injury to the borrower, because, one hundred dol- 
lars are worth no more to him when he pays five per 
cent, for risk, than when he pays nothing for it. What- 
ever, therefore, is paid for risk, is always a loss to both 
parties ; and the more that is thus paid, the worse it is 
for both. Hence, the rise of interest caused by bad 
government, civil commotion, revolutions, wars, and gen- 
eral immorality, is always an indication of national de- 
cline ; and the fall of interest, produced by the contrary 
causes, is an indication of national prosperity. 

2. On the other hand, the temporary rise of interest 
caused by increased productiveness, and the devel- 
opment of new national resources, is an indication of 
national prosperity. It shows that more than ordinary 
valuable modes of employing capital have been discov- 
ered, and, that men can afford to pay a larger price for 



OF LEGAL RATE OF INTEREST. 33i 

the use of capital. I have, however, called this a tem- 
porary rise ; because, a rise from such a cause, will soon 
equalize itself. Increased productiveness will soon sup- 
ply capital, or it will be imported from less favored 
countries. Thus, in new countries, the rate of interest 
is high ; but this is by no means an indication of adver- 
sity, for such countries, while paying so high a rate for 
capital, yet grow rich faster than those from which they 
borrow. 

3. Again : The gradual fall of the rate of interest 
caused by the diminution of risk, and the greater abun- 
dance of capital, is an evidence of prosperity. It 
shows that a larger proportion of the means of subsis- 
tence is falling to the share of every individual ; that 
every man can more easily procure capital ; and that 
every man, in order to support himself, produces a 
larger amount than formerly, of whatever will contribute 
to the comfort and convenience of his neighbor. 

4. On the other hand, the fall of the rate of interest, 
caused by a suspension of the means of production, is 
an evidence of national adversity. Suppose a war to 
occur between this country and France. The capita! 
now employed in transportation, must be almost wholly 
unproductive. The capital employed in producing our 
exports to that country, must also be useless. Hence, 
the rate of interest would fall ; for, many men would 
have no business in which to employ their capital. The 
case would be the same, were a fall in the price of 
capital to proceed from civil commotion, or any similar 
cause. And, the adversity would remain, until the 
cause were removed. For, if capital were removed out 
of the country, until, from reduction in the supply, the 
rate of interest rose, the industry of the country would 
still be depressed, until, by peace, order, and good gov- 
ernment, it regained its natural advantages. 

Hence, we see that, in order to form any correct 
opinion respecting the condition of the country, from the 
present rate of interest, we must always seek for the 
causes of that rate, instead of deciding from the mere 
rate itself. 



332 OF LEGAL RATE OF INTEREST. 

It is almost unnecessary, after what has been already 
advanced, to state that, in the view of the Political 
Economist, laws regulating the rate of interest are in- 
jurious to the prosperity of a country. Some of the 
reasons for this opinion, are the following : 

1. Such laws violate the right of property. A man 
has the same right to the market price of his capital, in 
money, as he has to the market price of his house, his 
horse, his ship, or any other of his possessions. 

2. The real price of capital cannot be fixed by law, any 
more than the real price of flour, or iron, or any other 
commodity. There is, therefore, no more reason for 
assigning to it a fixed value, than there is of assigning a 
fixed value to any other commodity. 

3. The price of capital, or money, is really more va- 
riable than that of any other commodity. Most other 
commodities have but one source of variation, namely, 
use or profit. But capital, in the form of money, is li- 
able to two sources of variation, risk, and use. These 
vary, at different times, in different investments, and with 
different individuals. There is, therefore, less reason why 
the price of money should be fixed by law, than why 
the price of any thing else should be so fixed. 

A. These laws, instead of preventing, give rise to 
great and disastrous fluctuations in the price of money. 

Suppose that, to-day, money is worth, in the ordinary 
operations of business, ten per cent., and it is worth six 
per cent, in loan. A man will as soon loan as employ 
it in business, if he possess more than he wishes to use. 
There will then be a fair supply of money in the market. 
But, let the profits of capital rise, so that, in the ordi- 
nary operations of business, capital is worth twenty per 
cent. If, now, the rate of interest rose with this in- 
creased rate of profit, the same individuals would be as 
willing to loan, as before ; and thus, the supply follow- 
ing the demand, there would arise no peculiar scarcity. 
The high rate of interest would also attract capital from 
abroad ; and thus, in a very short time, it would, in this 
particular place, be brought to the general level. 

But suppose that six per cent, were the highest legal 



OF LEGAL RATE OF INTEREST. 333 

rate of interest, and that he who loaned at a higher rate 
was liable to lose both his principal and interest, and 
also his mercantile character. In this case, as soon as 
the profit of capital in business rose to fifteen or twenty 
per cent., no one, who could thus employ it, would loan 
it at six per cent. Hence, as soon as it thus rose, the 
supply would be immediately diminished ; and this 
would, of course, cause a greater rise of interest. Those 
who, from honor or conscience, obeyed the laws, would 
withdraw from the market, and employ their capital in 
some other way ; and no one would loan, but those who 
were willing to risk the consequences of detection. 
These, having the money market in their own hands, 
will, of course, charge for the use, and for the risk of 
detection ; and, hence, the price, in a few days, may 
become doubled or trebled. And, at the same time, 
although the real value of money may be fifteen or 
twenty per cent. ; yet, because the legal price is six 
per cent., there is no inducement for capital to come in 
from abroad, to supply the demand. Hence, the change 
in the money market has, by reason of this law, no ten- 
dency whatever to regulate itself. 

It is, I presume, needless to add, that such laws can 
never be enforced. Men in want of money, will pay 
what they please for it, and those who choose to pay 
enough for it, can generally borrow. The effect, then, 
of the usury laws, is merely to drive the best and most 
conscientious lenders out of the market, or else oblige 
them to lend by means of subordinate and less scrupu- 
lous agents. For this agency the borrower must pay, 
and hence the additional rate of interest. To this it is 
objected, that money is not like other things, inasmuch 
as it is a necessary of life to the merchant, and therefore 
society must step in to deliver him from the effects of 
extortion. To this it may be answered as follows : 

1. It is manifest that this interference does not render 
the merchant's condition the better, but rather the worse. 
•Though the assistance, therefore, be well intended, he 
may very well dispense with it. 

2. The greater the necessity of money, the more 



334 NATURE AND PRICE OF STOCKS. 

urgent is the necessity of leaving it undisturbed by legis- 
lative interference. It makes small difference to the 
community, whether the price of jewelry be fixed by 
law or not. But, suppose that when flour would bring 
ten dollars a barrel, the government forbade it to be sold 
for more than seven dollars. Who does not see that 
the flour would be all driven away and the people 
starved ? The same principle, for aught I see, applies 
to the rate of interest. 

Hence, I believe all enactments establishing a legal 
rate of interest, are injurious and unwise. The only 
enactment of any value would be one which should de- 
fine the usual rate, when nothing was said on the sub- 
ject in the contract. The use of this would be to pre- 
vent disputes. This is always an advantage to both 
parties. 

I shall conclude this chapter, with a few remarks on 
the nature and price of slocks. 

I have already remarked, that, when a company is 
formed for any purpose requiring capital, and yielding 
interest, the capital is divided into portions called shares, 
and, that any one has a right to subscribe for as many 
of these as he pleases. If the shares, for instance, are 
one hundred dollars each, he who takes one share, pays 
one hundred dollars, and so of any other number. For 
every share he receives a certificate of ownership, and, 
so long as he owns this certificate, he is a member of 
the company ; he is entitled to the same rights as the 
rest ; and receives his proportion of the profit. These 
certificates are called stocks. They are transferable, 
like any other property, and the owner, as in any other 
case, sells them, if he wishes to do so, for whatever they 
will bring. The owner, for the time being, is the stock 
holder ; is amenable, in his proportion, to all the rules of 
the company ; and is entitled to his proportion of all the 
benefits accruing from the use of the capital. Such is 
the nature of bank, insurance, railroad, canal, and other 
stocks. 

The same principle is frequently applied to loans. 
Suppose a government wishes to borrow five millions of 



NATURE AND PRICE OF STOCKS. 335 

dollars, at five per cent., for twenty years, the interest 
to be paid quarterly. The conditions of the loan are 
specified, and subscription books opened, in different 
places throughout the nation. The whole sum is divided 
into shares, of which every one may subscribe for as 
many as he will. Every subscriber, thus, in fact, loans 
to the government, on the terms proposed, as much as 
he subscribes for. When his subscription is paid, he 
receives bis certificate, which contains an obligation of 
the government to pay the money at the appointed time, 
and which entitles him to receive the interest for the 
sum which he has loaned, a,t the rate and times specified. 
These certificates are also called stocks, and are trans- 
ferable, like any other property. Hence, they are an 
article of merchandise, like any thing else ; and, as per- 
sons are wishing both to buy and sell, every day, they 
are every day bought and sold, in great numbers, in all 
commercial capitals. 

Now, suppose money to be loaned in this way ; it is 
so much capital at interest, and it is affected by the 
same circumstances as other capital at loan. As the 
convenience of investment is, however, generally the 
same, the rate at which such stocks sell, will be affected 
wholly by profit and risk. 

1. Supposing the risk to be the same; these stocks 
are affected by the profit annually paid on the invest- 
ment. Thus, suppose the risk to be nothing, and the 
common rate of interest in a community to be six per 
dent. If I own a share equal to one hundred dollars, 
and it pay six per cent, interest, this share will always 
sell for one hundred dollars. Suppose that the ordinary 
rate of interest being the same, this share pays twelve 
per cent, interest. I can then sell it for two hundred 
dollars ; because, he who pays two hundred dollars for 
it, will receive interest at the rate of six per cent., 
which is as much as he would receive from any other 
investment. On the contrary, if this share paid but three 
per cent, interest, I could get but fifty dollars for it ; 
since three dollars is the interest of no more than fifty 
dollars. Thus, other things being equal, the price of 



336 NATURE AND PRICE OF STOCKS. 

stocks will always depend upon the interest which they 
pay ; and they will always sell for that sum, of which 
the dividend which they pay is the regular interest. 

This, however, is sometimes affected by the anticipa- 
tions of men. A stock which pays very little now, may 
be expected to pay largely at some future time. Its 
price may, therefore, be kept up by this circumstance. 
On the other hand, a stock may pay largely now, but 
there may be a fear that it will soon become icorthless ; 
this will, of course, depreciate it in value. 

So, also, of risk. The profit of stocks being the 
same, their price is inversely as the risk. If a stock 
pay the usual interest, but is in danger of sinking the 
principal, it will be depreciated acordingly. If a gov- 
ernment pay good interest for a loan, but there be dan- 
ger that it will be overturned by a revolution, the stock 
will, of course, fall. Thus, insurance stock never rises to 
the value of bank stock, when it pays the same interest, 
on account of the greater risk. Thus, also, steamboat 
stock may pay twenty or thirty per cent., and yet sell at 
no advance ; that is, it will be at par, because of the 
danger from fire and other accidents, and from the rapid 
wear of the principal. 

It is by circumstances like these, that the prices of 
stocks are determined. When a stock sells for what it 
cost ; that is, when a hundred dollars' worth of the orig- 
inal capital sells for one hundred dollars, that stock is 
said to be at par. When it sells for more than this, it 
is said to be above par ; and when it sells for less, it is 
said to be beloiv par. Thus, if slock be sold for thirty- 
seven per cent, above par, a share that cost one hundred 
dollars, sells for one hundred and thirty-seven dollars ; 
that is, one hundred dollars receives an interest, which, 
at the ordinary rate of money, is as much as one hun- 
dred and thirty-seven dollars would receive. And so of 
any other case. 

Now, it must at once be perceived, that the opinion 
of the value of stocks is made up very much from ex- 
pectations of profit or loss, or anticipations of increase 
or diminution of risk. Hence, the rumor of a war ; of 



NATURE AND PRICE OF STOCKS. 337 

the failure of a company, or of a bank ; of the probable 
insolvency of a government ; or the news of the gain or 
loss of a battle, may make a very considerable difference 
in the price of those stocks which would be affected by 
such information. Hence, the great liability to fraud, in 
all the operations of the stock market. If a capitalist 
can get up a rumor which will depress any stock two 
per cent., and buy one hundred thousand dollars' worth, 
during this depression, he may sell it again the next day, 
for its original value, and thus, in the course of twenty- 
four hours, realize two thousand dollars, without either 
risk or trouble ; while the unfortunate seller is cheated 
out of this amount, without reason and without remedy. 
I do not say that all rumors affecting the price of stocks, 
are thus fabricated. I only say, that such is the liabil- 
ity ; and it is not very unlikely, that what can so readily 
be done, has actually happened. And when such ru- 
mors actually arise without collusion, it requires great 
sagacity to judge of the probability of their truth, and 
thus to buy or sell, according to the true judgment to be 
formed from the facts actually in possession of the com- 
munity. 

And, besides this, another method may frequently be 
resorted to, for the sake of transferring money from the 
pockets of one class of citizens, into those of another 
class. Suppose a particular stock to be worth no more 
than fifty per cent. ; that is, to be capable of yielding no 
more than three per cent, on the original interest. Sup- 
pose there be only two or three hundred thousand dol- 
lars' worth of this stock in the market. If, now, a few 
individuals of large wealth combine together, they may 
easily buy up the whole of it, at this reduced price. 
The scarcity will at once excite inquiry, and will tend 
to create some demand. If, now, by means of other 
agents, they put small quantities of it into the market, 
and buy it in themselves, at gradually increasing prices, 
every one will become desirous of buying this stock, 
which, for a succession of days, has been rapidly rising 
in value. By careful management, it may thus be 
raised, in a few days, to seventy-five or one hundred 
29 



338 NATURE AND PRICE OF STOCKS. 

dollars per share. If, then, these present owners care- 
fully keep up the price, by buying little and selling 
much, until they have disposed of the whole of their 
purchase, they will, in a few weeks, find themselves to 
have doubled their money. In the mean time, the cause 
of this rise having been removed, the effect ceases, and 
the present holders, who have purchased at seventy-five 
or one hundred dollars a share, find that their stock is 
worth no more than fifty per cent. Thus, fifty dollars 
per share, is, with great adroitness, transferred from the 
pockets of the many, into those of the (ew, and many 
are ruined, while a few are rendered enormously rich. 
I again say, that the rise and fall of stocks, are not 
always to be attributed to such causes. But, every one 
soon sees that such events are liable to happen. Of the 
honor or the honesty of such a transaction, it is not ne- 
cessary here to speak. We will only take occasion to 
remark, that it behooves the uninitiated, who wish to 
escape these dangers, to be somewhat careful how they 
speculate in stocks. 



339 



CHAPTER THIRD. 

OF THE PRICE OF LAND, OR RENT. 

As the principal demand for land, is for the purposes 
of agriculture, we shall first consider Rent, specially 
with reference to this form of utility. 

Land is the instrument, by which the farmer produces 
the various vegetable and animal substances which he 
offers in exchange. 

Like any other valuable instrument, it, of course, 
commands a price according to its productiveness. He 
who hired a loom, would pay more for a loom with 
which he could weave twenty yards a day, than for one, 
with which he could weave but ten yards a day. The 
case is the same with land. 

Now, the productiveness of land is made up of two 
things: 1st. Fertility; and, 2dly, Situation. 

1. Fertility. We all know that the productiveness 
of different soils is very diverse. Some soils will pro- 
duce thirty, or forty, or fifty bushels of wheat to the 
acre, while others will produce, at the cost of more 
labor, not more than ten or fifteen bushels to the acre. 
Some soils will produce the most valuable vegetables ; 
and others, only the most common, and comparatively 
worthless. Some soils will produce no wheat whatever ; 
and others will, without manuring, produce a luxuriant 
crop, every year. Some, wholly unfit for tillage, can 
be used only for grazing ; and, even when thus em- 
ployed, yield to their stinted flocks, but a meagre sub- 
sistence. Hence, we see a reason for a great diversity 
in the price of land. And we see, at once, that a farmer 
might more profitably pay a rent for one farm, than oc- 
cupy another farm for nothing. 

2. Situation. The products of the farmer are all 
bulky, and, of course, acquire a very considerable addi- 



340 PRICE OF LAND, OR RENT. 

tion to their cost, by transportation. Hence, if A, raise 
wheat, within a mile of a market town, and sell it for one 
dollar a bushel, and B, live one hundred miles off, and 
bring his wheat to the same market, he must sell it at 
the same price. The merchant who buys wheat, can 
give no more than the market price for wheat, whether 
it have been raised near or far off. It is no more valua- 
ble to him, for having been brought one hundred miles. 
If, now, the price of bringing a bushel of wheat one hun- 
dred miles be fifty cents, B, actually receives but fifty 
cents a bushel for his wheat, while A, receives a dollar. 
If the farms of both were of equal fertility, that is, if 
both produced twenty bushels to the acre, the farm of 
B, would be only half as productive as that of A ; that 
is, he would receive only ten dollars per acre, while A, 
received twenty dollars. This amount of difference in 
situation, would be the same as a difference of one half 
in fertility, or actual productiveness. 

Hence, fertility being the same, productiveness will 
be as situation ; and, situation being the same, produc- 
tiveness will be as fertility. And we see, that these 
circumstances will always, when opposed, counterbalance 
each other ; that is, land at such a distance from the 
market that it cost one half the price of products to 
transport them, will be of the same value, or actual pro- 
ductiveness, as land of half its fertility, contiguous to a 
market. And, hence, in estimating the productiveness 
of land, these circumstances are always to be considered 
together. And, we see, that land of the greatest fertil- 
ity may be so far from a market, that the cost of trans- 
portation will leave a profit insufficient to repay the cost 
of cultivation. In such a case, such land will be worth 
nothing. 

With these principles in mind, we can easily see in 
what manner rent will be paid, for the different lands in 
a country. 

1. In the first settlement of a country, land is of no 
exchangeable value ; for every one may have as much as 
he pleases. Every one, therefore, being at liberty to 
choose for himself, will select such a portion as he sup- 



PRICE OF LAND, OR RENT. 341 

poses most productive. Under these circumstances, 
land would bring no rent ; since no one would pay anoth- 
er for the use of that which he could have for nothing. 
This would continue to be the case, until all the land of 
the first quality was occupied. Let us suppose, for the 
sake of illustration, that this first quality of land were 
capable of producing one hundred bushels to the acre, 
and were all contiguous to the place of settlement, and 
that the second quality of land were capable of produc 
ing but eighty bushels to the acre. 

2. Suppose, now, this settlement to increase so rap- 
idly that the inhabitants could no longer be supplied with 
products from the land of the first class ; or, that these 
products were in such demand, for the purpose of ex- 
change with other countries, that these lands could no 
longer yield the requisite supply. The price of grain 
would rise, so that a farmer could support himself by 
lands of the second quality ; and, as those of the first 
quality were all taken up, and he could obtain those of 
the second quality for nothing, he will proceed to occupy 
these. Although this quality of land would bear no 
rent ; for it will barely support him ; yet, it is better 
than starvation, and he will proceed to till it. But, as 
soon as this is the case, the lands of the first quality will 
begin to command a rent ; because, it is as well for a 
farmer to pay twenty bushels a year, for land yielding 
one hundred bushels an acre, as to have land producing 
only eighty bushels, for nothing. And, yet more: As 
soon as land will pay a rent, it will at once command a 
price ; because, if a man wish to invest capital, he will 
be as willing to pay for land as for stocks, or any thing 
else, that sum, of which, at the ordinary rate of profits, 
the rent would be the interest. Thus, if land pay six 
dollars a year rent, per acre, if money be at six per cent, 
interest, it is worth one hundred dollars an acre ; since 
six dollars is the interest of one hundred dollars. And 
so, if the occupier have the capital, it is as cheap for 
him to buy the land, and receive the interest himself, as 
to hold the money himself, and pay the interest to another. 

3. Suppose, now, the price of grain, either for home, 

29* 



342 PRICE OF LAND, OR RENT. 

or for foreign consumption, to have risen so much, that 
the lands of the third quality, or producing sixty bushels 
per acre, could now be tilled, and support the agricul- 
turist. As soon as this became the case, lands of the 
second quality would yield a rent and would bear a price ; 
because, it would be as profitable for a farmer to pay 
twenty bushels a year for land of eighty bushels, as to 
cultivate land of sixty bushels for nothing. And, as 
soon as land of the second quality brought a rent, the 
rent of land of the first quality would also sustain a cor- 
responding rise. It would be as cheap for a farmer to 
pay forty bushels a year for land of one hundred bushels, 
as twenty for land of eighty bushels, or as to have land 
of sixty bushels for nothing. 

4. It is evident, that as the settlement of the country 
advanced, rent and the price of land would go on aug- 
menting, according to these principles. Land, which 
will merely support the cultivator, will bear no rent. 
But, all land of a greater productiveness than this, will 
yield some rent ; and, this rent will be precisely as its 
productiveness exceeds that of the poorest soil which is 
worthy of cultivation. And, so soon as any soil is tilled 
of a poorer quality than any which was tilled previously, 
all the soils of a better quality will rise in rent, and in 
price accordingly. 

5. Suppose the land of any nation to be limited by 
situation, or by territorial lines ; it is evident that the 
demand for food, increasing with the increase of the 
number of inhabitants, the land would, in time, be all 
occupied. As soon as the poorest land was capable of 
yielding something, besides supporting its inhabitants, it 
would also pay rent. And thus, as before, the price 
and the rent of land would go on increasing, until it was 
arrested by some counteracting cause. Such causes are 
the following : If the grain were exported, its rise of 
price would gradually limit the foreign consumption ; 
since other nations would begin either to raise it them- 
selves, or to procure it elsewhere. Or, if trade were 
free, as soon as its price rose so high that the nation 
itself could procure its supplies cheaper abroad than at 



PRICE OF LAND, OR RENT. 343 

home, it would import instead of raising it. As soon as 
this became the case, the price of grain would rise no 
higher ; and, at whatever rate of rent this kind of land 
may have been when this change took place, from this 
time it would, at that rate, remain stationary. 

6. It is, however, to be observed, that this effect 
upon the occupation of land, would be rather a change 
in the manner of use, than in the utility of the land itself. 
It is evident that it could affect the demand for land, 
only for the production of those commodities that are 
capable of distant transportation, such as bread stuffs in 
general. But a very large part of the productions of the 
earth are not capable of such transportation ; such are 
butcher's meat, which forms so large a portion of the 
food of man ; green vegetables ; milk and butter ; and 
the food of animals, both for slaughter and labor. Just 
in proportion as a population increases, the demand for 
all these will increase likewise. Hence, it is reasonable 
to suppose, that although the importation of foreign grain 
checked the growth of domestic grain, the increased de- 
mand for thei-e other domestic products, would keep the 
prices of land in a state of progressive increase. 

Besides. It is evident that the demand for these re- 
cent and untransporlable productions of the earth, must 
be in proportion to the number and the wealth of the 
population. We have already shown, that the number 
of the population must be as the means of subsistence. 
Hence the cheaper grain and bread stuffs are, the more 
rapid will be the increase of population, and the greater 
will be the demand for those products, of which the 
agriculturist at home must, from his locality, enjoy the 
monopoly. Hence it may reasonably be doubted, 
whether the corn laws of Great Britain, of which the 
object is, to keep up the price of land, and to sustain 
the agricultural interest, have really had this effect ; and, 
whether they have not, in reality, had the contrary effect. 
Had the price of corn been as low as it might have been, 
for the last fifty years, but for the duties on imported 
grain, the population of Great Britain would have been 
probably doubled, both from the greater cheapness of 



344 PRICE OF LAND, OR RENT. 

living, and also from the stimulus given to her manufac- 
tures, by the diminished price of all her products, and the 
demand for her manufactures to pay for the corn that she 
imported. In this case, the increased demand for all 
the recent productions of the earth, would have been 
more than equal to all the benefit which even the agri- 
culturist is supposed to have reaped, from the exclusion 
of foreign bread stuffs. If this be so, it is another illus- 
tration of the universal law, that a selfish policy always in 
the end defeats itself; and reaps its full share of the 
gratuitous misery which it inflicts upon others. 

7. From the view which has been taken, it would at 
first seem, that the point of earliest settlement of a coun- 
try, or at least its maritime frontier, would be its centre, 
where land would be of the highest price ; while all the 
lands of the interior, in proportion as they receded from 
it, would gradually decrease in value, until the cost of 
transportation of products, at last reduced their value to 
nothing. Such would be the case, were it not for vari- 
ous circumstances, which greatly modified this result. 
Some of these modifying circumstances, it is important 
to notice. 

i. As a people are thus spread over a large territory, 
and are devoted to agriculture, it becomes necessary that 
other persons should devote themselves to manufactures, 
and to barter and sale. Those who are thus employed, 
by necessity collect together, into towns and villages. 
Thus a large population is collected, which raises noth- 
ing from the earth ; and hence, their wants must be sup- 
plied by the agriculturists in their neighborhood. Hence, 
immediate markets for produce, are created in every 
district ; that is, although the farmer cannot remove his 
farm nearer to the market, the market has removed near- 
er to him ; and the diminution of distance has increased 
the productiveness of his farm, as much as though its 
fertility had been increased, or it had been removed to 
the sea-board. It is not fifty years, since land in the 
vicinity of Utica, New York, was valuable only for rais- 
ing produce, which was sent to the city of New York, 
by the way of Albany ; and the rent, and consequent 



PRICE OF LAND, OR RENT. 345 

price of land, depended on what could be made by a 
harvest, after deducting from the market price of wheat, 
in New York, the cost of transportation between the 
two places. But, while the land has remained unmoved, 
population has moved toward it ; and Utica itself is a 
populous city, demanding, for its supplies, the produc- 
tions of all the surrounding county ; so that land, in its 
vicinity, bears, I presume, a very considerable propor- 
tion to the price of land in the vicinity of the city of 
New York itself. 

2. I have mentioned above, that productiveness of 
land, depended not only on fertility, but also on situa- 
tion, or facility of a communication with a market. Fer- 
tility being given, productiveness will be as situation ; 
that is, the greater the ease of transportation, the greater 
the actual productiveness ; and, of course, the higher 
the value of land. Thus, if land produce one hundred 
bushels per acre, and it costs half its market price to 
convey it to the place of sale, it is only as valuable as 
land of half its fertility, contiguous to the market. If, 
then, the cost of transportation can be, by any means, 
reduced, the productiveness of lands, affected by this 
reduction, will rise in proportion. If, when the price 
of wheat is a dollar, it cost fifty cents to transport it, 
and the cost of transportation can be reduced to twenty- 
five cents, it is as good to me, as if the price had been 
raised twenty-five cents, or 'my land had increased fifty 
per cent, in fertility. Now, in the progress of a coun- 
try, great improvements are generally effected in roads, 
and the ordinary modes of transportation, by which the 
value of the lands at a distance is generally enhanced. 
This result is, however, signally effected by canals and 
railroads. The effect of these means of transportation 
is, to raise the prices of products in the interior, and, of 
course, the price of land in general, in the manner above 
staled. A very intelligent gentleman of Geneva, New 
York, informed me, that in the year IS21, the price of 
wheat in that town was thirty-one cents per bushel. In 
1S22, the price was thirty-seven and a half cents. The 
canal was opened during the next year, and it rose to 



346 PRICE OF LAND, OR RENT. 

sixty-two and a half cents. It has never since fallen be- 
low this latter price, and at the time of the conversation, 
1835, it was selling at one dollar and thirty-one cents 
per bushel. The price of land, of course, has arisen in 
proportion. And this change has been for the benefit 
of all parties. The farmer is greatly enriched, the la- 
borer is better paid, a greater number of persons are 
very profitably employed and supported by labor on the 
canal, and wheat has been sold at a lower price to the 
consumer, than ever before. 

So far as we have treated of this subject, we have 
considered the fertility of land, as, on an average, equal ; 
and the facility of communication gradually diminishing, 
with the increase of the distance. Under these circum- 
stances, it is manifest, that the price of land, in the inte- 
rior, could not rise, unless the price of land on the sea- 
board had first risen. And, as land came into market, 
further and further from the old settlements, it would al- 
ways indicate a rise of price in the land which had first 
been cultivated ; or in the most favorably localities. 

But it is manifest that the case may be far otherwise. 

1. The land in the interior may be the most fertile, 
and may enjoy the most favorable climate. The in- 
creased fertility, will, of course, counterbalance within a 
certain limit, the inconvenience of situation ; and mild- 
ness of climate, will render a less exertion necessary to 
procure the necessary provisions for the sustentation of 
animal life. Hence, the profit of labor will be greater, 
and the difference, in these respects, may be such, as to 
counterbalance entirely, within a given distance, the dis- 
advantages of position. In this case, the interior will be 
settled without advancing the price of land on the sea- 
board. The advantages of both, though dissimilar, are, 
so far as productiveness is considered, equal ; and, of 
course, there is no reason why any one should pay any 
thing for a choice. 

And, secondly, as I have shown before, the difficulty 
of transportation may be so reduced, that it forms but a 
small part of the cost of whatever is raised in the inte- 
rior. When it costs but a kxv cents more a bushel, to 



PRICE OF LAND, OR RENT. 347 

transport wheat three hundred miles, than fifty miles, and 
the fertility of land three hundred miles from the market, 
is twice as great as that in the vicinity, it is evident, that 
the productiveness of land three hundred miles off, will 
be greater than of that only fifty miles from the market. 
Hence, the price of the one might rise, without produc- 
ing a rise in the price of the other. Nay, it is evident, 
that it might produce a contrary effect. If a farmer in 
the interior could raise wheat at a fair profit, and bring 
it to market for one dollar a bushel, and the farmer in 
the neighborhood of the market could not, at a fair profit, 
sell it for less than one dollar and twenty-five cents, as 
the latter must sell his wheat at the current price, of 
course, he could not raise it at all. Hence, as a source 
of profit is cut off, the annual produce is less, and the 
price of land will fall. 

Such has been, to some extent, the course of events 
in this country. The lands on the sea-board were first 
settled, and cultivation gradually extended to the west. 
At first, the average fertility of the lands newly occupied, 
was no greater than that of those first cultivated ; and 
the price of the old lands rose, as the new lands were 
occupied. By degrees, cultivation passed over the Al- 
leghany mountains, and entered the Valley of the Missis- 
sippi. Here the soil is exuberantly fertile, and the cli- 
mate mild ; but, the difficulty of communication with the 
interior, operated as a severe check upon the growth of 
the new States, and the price of lands in the old States 
was not materially affected. As soon, however, as the 
use of steam opened the navigation of the Mississippi, 
the whole scene was changed. The inland States be- 
came, in position, almost sea-board States. Their fer- 
tility was relieved from the inconveniences of position, 
under which it had formerly labored ; and the produc- 
tions of a new and rich soil could be brought to market, 
with as little cost for transportation, as that of lands 
within one or two hundred miles from the sea-board. 
The result has been, that the western farmers have un- 
dersold the farmers of the north and east ; and now, 
but little wheat is raised in any part of New England. 



348 



PRICE OF LAND, OR RENT. 



This result has been increased, by the vast emigration 
to the west, which has diminished the number of labo- 
rers ; and by demand for laborers at the east for man- 
ufactures and internal improvements, which has with- 
drawn men from agriculture, and raised the wages of ag- 
ricultural labor in the New England States. Hence, by 
the increased wages of labor, and the reduced price of 
grain, the profit of agriculture has been reduced, and the 
price of land has fallen. I suppose that land, at present, 
in New England, for the ordinary purposes of agricul- 
ture is not generally as dear as it was twenty or thirty 
years since. 

Yet, it by no means follows, that this depreciation will 
increase. The settlement of the Western States creates 
a vast market for manufactures, and a vast demand for 
mercantile exchanges. These require capital, which is 
more abundant in the older States. The older States, 
also, have, by nature, greater facilities for such employ- 
ments. Hence, the Western States will become their 
customers, and the older States will become thickly 
peopled with a manufacturing and mercantile population. 
Land will be in demand, for supplying the immediate 
wants of such a population, and it will probably again 
soon rise. Each manufacturing establishment will be- 
come a centre, which will confer a high value on land 
in its immediate vicinity. By the multiplication of such 
centres, the price of the whole will be augmented. 

I have thus far considered the price of land, only in 
so far as its mere productiveness is concerned. This 
will, of course, be the most ordinary and general cause 
of the variation in its price, and in its rent. There are, 
however, other circumstances, which have a material 
effect upon its value, even in the same country, and un- 
der substantially the same laws. 

1. Beauty of situation. Of two farms equally pro- 
ductive, many men would give a decided preference to 
that which commanded a view of the richest and most 
beautiful prospect, or of which the trees and shrubbery 
were so arranged, as to give the greatest pleasure to the 
beholder. For this preference, most men would be 



PRICE OF LAND, OR RENT. 349 

willing to pay a considerably additional price. This ad- 
ditional price will increase with the wealth and the im- 
proving tastes of the community. This is a circum- 
stance which should always be borne in mind by the 
occupiers and owners of land. It costs but little more 
labor to lay out an orchard regularly and beautifully, 
than to lay it out irregularly and clumsily. It costs 
nothing to let a tree stand, where it adds beauty to a 
prospect, and it costs very little to plant one, where it 
will have the same effect. A neat and convenient house, 
consumes neither more lumber, nor nails, nor labor, than 
a slovenly and inconvenient one. And yet, on these 
differences, very much of the exchangeable value of a 
farm depends. 

2. The price of land depends much on the intellectu- 
al and moral character of a neighborhood. 

Of two farms of equal productiveness, but in very dis- 
similar moral and intellectual communities, almost every 
one would prefer that, which, in these respects, possess 
ed the greater advantages. A man who has in any de- 
gree cultivated his own intellect, prefers the society of 
those whose intellects are also cultivated. A parent 
would always prefer a neighborhood in which his children 
would receive the advantages of education. A man who 
had been accustomed to religious observances, would 
choose to remove where he could enjoy the benefits of 
religious instruction. And every man, let his disposi- 
tions be what they may, will choose to reside in a neigh- 
borhood, in which the moral character of the people is a 
protection from dishonesty and robbery ; and where his 
children will be, as little as possible, exposed to the 
contamination of vice. It is manifest, that each of these 
considerations, would form a ground of preference for 
one situation over another, and for this preference, every 
reasonable man would be willing to pay. Were two 
farms thus differently situated, there would be many 
more buyers for the one than for the other, and the ad- 
vantage would all be on the side of the most intelligent 
and moral community. 

Hence we see, that, besides the advantages which in- 
30 



350 PRICE OF LAND, OR RENT. 

telligence and virtue confer upon the character of a peo- 
ple, there is also an additional advantage, in the increas- 
ed value of property which they produce. It may be 
fairly questioned, whether this, of itself, be not sufficient 
to repay the whole expense of literary and religious in- 
stitutions. There are towns in New England in which, 
within a few years, the price of real estate has doubled, 
for no other assignable reason, than that of the literary 
and moral advantages which they hold out to residents. 
This mode of increasing the value of property, seems to 
me deserving of more attention than it has generally re- 
ceived. 

Land is used for other purposes besides residence and 
agriculture. The principles upon which its value is de- 
termined, in such cases, are substantially the same as 
those mentioned above. 

I. Thus, in cities, land for the erection of buildings 
has a two fold value ; 1st, for dwelling houses ; and, 
2dly, for ware houses, and places for the transaction of 
business. Its value, in both of these respects, depends 
not on fertility, as it is not wanted for cultivation, but 
wholly on situation. A man needs a house which will 
furnish the necessary conveniences for his family. He 
also wishes one, within a convenient distance from his 
place of employment. The further his dwelling is re- 
moved from his shop or his counting room, the longer 
time is occupied in passing from the one to the other, and 
the less are the conveniences of his residence. Hence, 
he will be willing to pay ■ for the choice, and thus the 
price of land gradually diminishes from the centre to the 
circumference of a thickly settled town. 

But, in a place of mercantile business, edifices have 
another value, besides that of dwelling houses. They 
are needed for the transaction of business. Where many 
exchanges are to be made, in the course of a ^e\v hours, 
every day, it is of importance that the exchangers should 
be as near together as possible. And, where a large 
number of strangers is daily collected for the sake of 
making purchases, it is important to the seller, to be so 
situated as to be in their immediate vicinity. A mer- 



PRICE OF LAND, OR RENT. 351 

chant whose store is in the centre of business, can easily 
sell ten times as much in a day as one who is half a mile 
off from the centre. Hence, he is able, from the mere 
fact of difference in situation, to realize a much greater 
annual profit in the one place than in the other. For 
this difference of productiveness, he will be willing to 
pay a price ; and, hence, in large cities, the most cen- 
tral situations, or, as they are called, the best stands for 
business, command a very high rent ; and a correspon- 
dent price. A (ew square feet of land in the centre of 
the city of New York, will sell for more than many acres 
of the most productive soil in any part of the Union. 
And, as the price of land, in such cases, is owing entirely 
to ihe demand for the purposes of facilitating trade, it 
can only rise with the increasing prosperity of the place. 
Hence, the rise or fall of real estate, in any town, if it 
be truly a rise in value, and not a rise from speculation, 
is one of the surest indications of its mercantile prosper- 
ity, or of the reverse. And, moreover, the rise of rents, 
in any given place, proceeds upon the same principles as 
those which we have already illustrated. Suppose the 
places of business, in a town, to be all occupied, with- 
in a given circle, and that they are sufficient for the ac- 
commodation of all the merchants who need them. If 
the town be prosperous, in five years, these accommo- 
dations will be insufficient, and buildings without this 
circle will come into demand for this purpose. Their 
rent, in consequence of this additional value, will rise. 
But this rise will be accompanied by a rise in the rent 
of the more favored situations. Those persons, whose 
employment requires a central situation, will occupy the 
centre, at a price which will exclude those to whom 
such a situation is less essential, and this process will go 
on, until those who are the least able to come into com- 
petition, pass out of the original circle, and thus create 
a new demand, and raise the price of rent as it has been 
before suggested. 

2. Land frequently possesses an additional value, in 
consequence of its proximity to waterfalls. A water- 
fall provides for the manufacturer, a constant supply of 



352 RENT OF MINES. 

momentum, which he can use by means of very simple 
machinery. Suppose the interest of capital employed 
in the construction of furnaces, and steam machinery, 
and the annual expense for fuel and attendance in a 
given situation, were one thousand dollars, and the same 
power could be procured at the same place, by ap- 
propriating a waterfall, by means of machinery, of which 
the interest was no more than one hundred dollars ; the 
labor of the waterfall would be worth nine hundred dol- 
lars per year. Hence, supposing it to be in a situation 
in which there was a demand for this power, the land 
which gave the legal right to the use of it, would possess 
a value proportioned to the value of the power. Of 
course, the price which it would command, would de- 
pend upon the annual value of the privilege. This 
would be determined by the amount of applicable pow- 
er, and by the situation. A power sufficient to move a 
dozen mills, would be twelve times as valuable, as that 
which could move only one. A water power near the 
sea-board, would be much more valuable than one in the 
interior. If it were at tide water, its annual value would 
be equal to the difference between its annual expense 
and that of steam. If it were at a distance from tide 
water, or the market, it would be equal to this differ- 
ence, minus the expense to be incurred, in the trans- 
portation of the material and of the manufactured fabric. 
As soon as the cost of transportation was equal to the dif- 
ference of expense between the two modes of producing 
power, it would become valueless ; because it would be 
as cheap to erect a manufactory at tide water, and pay 
the expense of building and fuel, as to have the power 
for nothing, and pay the same expense for transporta- 
tion. Hence, in the erection of mills and the establish- 
ment of manufactures, both of these circumstances are 
to be maturely considered, before a situation is decided 
upon. For want of such consideration, much property 
has been totally lost. 

3. Jlfines. These depend upon the same principles 
as those which have been already illustrated. A water 
privilege is a mine of power, a bed of ore is a mine of 



RENT OF MINES. 353 

metal. The former is frequently the most valuable pos- 
session. 

Suppose a farm to be worth the ordinary price of 
land ; and the owner discovers on it a bed of iron ore, 
which, after deducting the necessary expenses of work- 
ing it, and paying the labor and skill necessary to the 
operation, will yield one thousand dollars a year. The 
farm or the land necessary for the mining operations, 
will rent for one thousand dollars a year, or will sell for 
such a sum as will yield, at the ordinary rate, one thou- 
sand dollars as interest. In this case, it is manifest that 
the original owner of the property will be a gainer by the 
discovery, to the full amount of the increase in the price 
of his land. But, here, the peculiar gain ceases. To 
other holders who may come after him, it is merely an 
investment, of the same nature as any other invest- 
ment ; and will yield no more than the ordinary rate of 
profit. 

The case is the same with a copper, a silver, or a 
gold mine. The owner of the land at the time of the 
discovery, becomes greatly enriched, in consequence of 
this new product, which may be derived from his prop- 
erty. But, after this rise, when a new purchaser comes 
into possession, the peculiarity of the gain ceases. A 
rich gold mine will rent or will sell for more than a poor 
one, and its price, or its rent, will be in exact propor- 
tion to its productiveness, just as a farm, a mill privi- 
lege, or any other property. It is a somewhat remark- 
able fact, that mines of the precious metals are, in gen- 
eral, singularly unprofitable, after they have passed out 
of the hands of the original owners. It has grown into 
a proverb in South America, that if a man own a cop- 
per mine he will grow rich, if he own a silver mine he 
will gain nothing, but if he own a gold mine he will cer- 
tainly be ruined. The fact, however, may be easily 
accounted for. The imaginations of men are always 
strongly excited by the contemplation of the precious 
metals, and it is rare that any thing but experience can 
teach them, that they may buy gold too dear. Hence, 
they do not compute the chances of profit in the pro- 
30* 



354 INTEREST ON REAL ESTATE. 

duction of gold, as coolly as they do in any other case. 
But the production of gold is governed by as fixed laws, 
as the production of wheat. Gold cannot, any more 
than wheat, be produced by an effort of the imagination. 
It is the result of labor, and skill, and expense. And, 
if these be greater than the revenue, a man will as as- 
suredly be ruined by producing gold, as^by conducting 
any other unprofitable business ; his imagination to the 
contrary notwithstanding. 

The interest of land, or real estate in general, is com- 
monly less than that of other property ; that is, if any 
particular stock costs one hundred dollars, and yields, as 
interest, but three per cent., it would not sell for one 
hundred dollars, but for fifty or sixty dollars. But land 
which costs one hundred dollars, although it yield but 
three per cent., will sell for ninety or one hundred dol- 
lars. That is, men are willing to receive less interest 
for capital in land, than other property. It may be worth 
while to suggest the reason of this difference. 

1. Property in land, is considered more secure than 
any other property. The principal may be considered 
indestructible. Hence, it is the safest of all invest- 
ments, and nothing is paid for the risk. 

2. The title to land can be more definitely secured, 
than that of any other property. The legal instruments, 
by which it is secured to the individuals, are a matter of 
public record. The boundaries of land, can be, and 
commonly are, ascertained with entire precision. The 
land itself cannot be removed. Hence, the ownership 
of it can be always ascertained and conveyed to pos- 
terity. 

3. Men generally derive some influence and consid- 
eration from the ownership of land, which they do not 
derive from any other possessions. In many places, the 
right of suffrage is restricted to landholders. Where 
this rule exists, it, of course, shows the degree of con- 
sequence which is attached to this sort of possession. 
And the fact, that it has so frequently existed, while the 
contrary rule has never existed, shows the general ten- 
dency upon the subject. 



DISTRIBUTION ILLUSTRATED. 355 

4. There is, I think, in the human race, a strong dis- 
position to become the owners of land ; and a natural 
love to the pursuit of agriculture. Men of all profes- 
sions, look forward to some period of life, in which, re- 
lieved from the toils of business, they may retire to the 
quiet country. To whatever extent this disposition ex- 
ists, it of course tends to raise the price of land, above 
that of other property, paying the same rate of profit. 
If a man. receive a part of his remuneration in pleasure, 
he will be content to receive less in the form of money. 

5. And, lastly, the natural progress of society tends 
to increase the value of landed property. This has 
been already illustrated in general, in the remarks which 
have been made upon rent. And it must be evident, 
that, land remaining the same, and the population con- 
tinually increasing, the demand for land must continually 
increase. And, besides this, the progress of society 
creates not only a more extensive demand for land, but 
a much greater variety of demands. As such is the 
tendency, men are willing to hold land at a less interest 
than other property, in the hope that the rise of price at 
some future time, will compensate for their present loss. 
Thus, men frequently invest money in wild lands, ex- 
pecting to reap no profit from them for many years, but 
calculating upon a rise of price at some time or other, 
which shall abundantly repay both principal and interest. 

Such are, I believe, the principal circumstances which 
effect the distribution of the profits of capital, and the 
wages of labor. It may be useful to illustrate the mode 
in which they operate, in an individual case. Let us 
take, for instance, a yard of calico. 

1. The price of a bale of cotton is made up of the 
rent of the land on which it grew, the wages and ex- 
pense of the laborers who were employed in its cultiva- 
tion, the labor and skill of the agriculturist who superin- 
tends the labor, the cost of seed, manure, utensils, &c. 
He who buys the cotton, pays a price sufficient to re- 
munerate these laborers, pay the interest on the invest- 
ment, and replace the expenditure for materials. He 
who raises the cotton, distributes the money which he 



356 DISTRIBUTION ILLUSTRATED. 

has received, according to the principles which have 
been above suggested. 

2. The cotton is sent by the merchant in Mobile to 
New York, and sold at an advanced price to the mer- 
chant, in this latter place. This advance, is sufficient 
to remunerate the merchant in Mobile, and to pay the 
cost of transportation. The merchant at Mobile is thus 
paid for his labor and skill in selecting and stowing the 
cotton ; and for the use of his capital whilst it was in- 
Vested in cotton. The cost of transportation is made 
up of cost of investment in the vessel, in the wear and 
tear which it undergoes, in subsistence of mariners, and 
cost of insurance. This remuneration is distributed, as 
we have stated, according to the skill and labor of the 
several persons by whom it has been performed. This 
is paid by the merchant in New York, and adds so much 
to the price of the cotton. When paid, it is divided 
between the owners of the vessel and the mariners, ac- 
cording to the laws which govern the wages of labor and 
of capital. 

The cotton is bought by the manufacturer, who pays 
the merchant in New York, what he paid to the mer- 
chant in Mobile, with an addition for transportation, 
agency, and the use of capital whilst it has been in his 
hands. He removes it to his manufactory, cards, spins, 
and weaves it, and prepares it for the calico printer, to 
whom it is next sold. The calico printer pays the man- 
ufacturer what he paid the merchant, and an additional 
sum for the value which he has conferred upon it. This 
sum is the compensation to the manufacturer. With it 
he remunerates himself for his use of capital, labor, and 
skill, and pays his workmen, for their labor, according 
to their skill and industry. 

It now goes through the process of printing, and is 
then sold to the merchant at an additional advance. 
This advance is sufficient to replace the price paid by 
the calico printer to the manufacturer, and also to pay 
the calico printer for the use of his capital, and the la- 
bor of his workmen. It is by the merchant sold to the 
consumer. The consumer pays the merchant the price 



EXTENT OF BUSINESS. 357 

paid by him to the manufacturer, and an additional sum, 
sufficient to remunerate him, for the use of his capital, 
skill, and labor. So that, when the article comes to the 
consumer, it is charged with all these previous prices, 
which have, in these various processes, accumulated 
upon it. The consumer pays what has been paid to the 
agriculturist, the mariner, the cotton merchant in Mo- 
bile, and the cotton merchant in New York, the manu- 
facturer, the calico printer, and the calico merchant. 
Each several amount has been charged upon it in its 
progress, and the consumer, at last, pays enough to re- 
place the whole. The case is the same with a watch, a 
knife, a plough, or any other article of merchandise. 

I shall conclude this chapter with two general re- 
marks ; one, on the proper use of credit ; the other, on 
the nature of insurances. 

From what has been said upon the nature of credit, 
it is evident that a merchant may easily carry on a busi- 
ness greatly beyond his actual capital, and even with no 
capital at all. For instance, he may sell wholly the 
goods of another, by purchasing entirely on credit. Or 
he may borrow capital of an individual, or of a bank, 
and pay cash for his stock, and interest on his purchase 
money. In this case, he uses the property of the lend- 
er, instead of the property of the merchant of whom he 
purchases. Or he may possess capital, say ten thou- 
sand dollars, of his own, and may effect credits to twice 
or thrice this amount. Or, lastly, he may employ in 
trade no more capital than that which he actually pos- 
sesses. 

Now it is manifest, that the profit must be, in these 
cases, very dissimilar. When a merchant owns all the 
capital'he employs, he receives as profit, interest on his 
capital, and remuneration for his labor and skill. When 
he owns but a part, he receives interest for that part, 
and remuneration for his labor and skill in managing the 
whole. When he owns nothing, he receives nothing for 
interest on the capital, but only remuneration for his la- 
bor and skill in the management of the capital. 

The risk of failure, and the liability of injuring oth- 



358 EXTENT OF BUSINESS. 

ers, are also dissimilar. He who owns all the capital 
he uses, can injure no one ; because he cannot lose 
more than all, and, as he owns all, he is the sole suffer- 
er. His payments may possibly be delayed, but he 
will, in the end, be able to pay every one his due. 

When a merchant owns a part of the capital which 
he employs, he is not liable to injure his creditors, un- 
less his loss be sufficient to absorb more than the por- 
tion which he himself possesses. But when a merchant 
trades wholly upon the capital of others, if his losses 
are more than sufficient to cover the advance due to his 
labor and skill, he must fail, and his creditors must 
suffer. 

Hence, the moral and economical principles which 
should govern men in the transaction of business, under 
these circumstances, are somewhat dissimilar. 

1. If a man choose to squander or to risk his own 
property, though there may be a moral question in re- 
spect to his duty to God, there is none in respect to his 
duty to man. If he pay all his debts, no one has any 
claim upon him. Yet, so far as his own interest is con- 
cerned, he may do well to remember, that men will very 
naturally suppose, that, after having wasted all that was 
his own, it will not be safe to trust him with what be- 
longs to others. 

2. If a man trade in part with the property of others, 
he is bound so to conduct his affairs, as to expose their 
property to no unnecessary risk that can be foreseen. 
Hence, if their guaranty against loss, consist in tha't part 
of his stock which he owns, he is bound to guard against 
every risk, which could not be made good, by the sacri- 
fice of his own property. This principle affects both 
the kind and the amount of business which he under- 
takes. It should be of such a kind, as is exposed to 
no greater risk than may be covered by his own proper- 
ty. It should be only to such an extent, that no ordina- 
ry fluctuation of business will endanger those who have 
confided in his skill and integrity. If he, knowingly, 
act otherwise, he is dishonest. -Nor is this all. If he 
really expose others to no risk, yet if he so enlarge his 



NATURE AND USE OF INSURANCE. 359 

business, that he is continually obliged to call upon his 
neighbors for assistance, and to throw himself on their 
mercy, to save him from loss of mercantile character, 
he trifles with his credit, and makes an unfair use of their 
kindness. A man who is always exposing himself to 
extreme risks, will generally expose himself once too 
often. 

3. He who trades wholly upon the capital of another, 
should consider himself essentially in the character of an 
agent, and at liberty to expose the property of his prin- 
cipal to no risk ; or which an unprejudiced person would 
not consider reasonable. He is to remember, that if he 
succeed, the owner of the property derives no benefit 
beyond the fair and ordinary profit ; but if he fail, the 
owner suffers all the loss, and, therefore, he has no right 
to seek to benefit himself, at the risk of impoverishing 
another. 

4. The same rule should govern the expenses of him 
who is engaged in business with the capital of another. 
He derives from his trade nothing more than the wages 
of his skill and labor. Within the amount of these 
wages, his expenses should be restricted. If he expend 
more, he is living dishonestly on the property of another. 
If he expend the whole of these wages, he is accumu- 
lating no capital, but at the end of the year will be as 
poor as he was at the beginning. He can only become 
rich by reducing his expenses as far as possible below 
his income, and thus having, every year, something to 
invest as capital, which shall give stability to his credit, 
and increase to his annual revenue. 

Of Insurance. When property of any kind is de- 
structible, it is liable to be destroyed by accident. Thus 
houses, being combustible, are liable to be destroyed by 
fire. Ships are liable to be wrecked by storm and tem- 
pest. This liability- is called risk. It is evident that it 
may, under given circumstances, be estimated. Thus, 
if we know the value of all the houses in a given city, 
and the amount of value in houses, which, on an average, 
for several years, has been destroyed by fire, we may 
estimate how great the risk of fire in that city is. 



360 NATURE AND USE OF INSURANCE. 

The case is the same with ships, or with any other 
property. 

Now this risk being thus known, one person may bear 
it as well as another. If I have a ship at sea, I may 
either bear the risk of losing it myself, or I may pay 
another person for bearing the risk for me. This trans- 
fer of risk is found convenient, and either companies or 
individuals are easily found, who, for a small addition to 
the actual value of the risk, are willing to insure any 
property that may be offered. 

From this view of the case, it is mani!*est, that insur- 
ance has no effect upon the fact of the loss. If a ship 
and cargo worth one hundred thousand dollars be sunk, 
precisely one hundred thousand dollars' worth of value is 
destroyed. The only effect of insurance is, to make the 
loss fall upon one person instead of upon another. The 
benefit of this transfer consists in this, that the loss is 
thus equalized. It is better for a community to divide a 
given loss among a great number of persons, than to suf- 
fer it to fall exclusively upon one. 

And hence, inasmuch as every one has the power of 
avoiding risk, by paying a small premium ; every one 
whose property is small, and liable to be lost by a single 
accident, is negligent if he suffer it to remain a moment 
uninsured. Specially is this the case, when he holds 
the property of others ; or when their only security for 
payment depends upon the stock in trade which he pos- 
sesses. 

And again. As insurance has no effect upon the fact 
of loss, the higher the premium of insurance the greater 
is the annual loss to a country ; because it shows us how 
great an amount of property is annually destroyed. 
Hence a sound policy would always dictate the impor- 
tance of taking every means to reduce the rate of insur- 
ance as low as possible. This can be done only by re- 
ducing the risk of the accidental destruction of property. 
On this account, the abundant supply of water is a mat- 
ter of inestimable economical importance to a city. The 
difference in the amount annually paid for insurance by 
the two cities of New York and Philadelphia is enor- 



NATURE AND USE OF INSURANCE. 361 

mous. Nor is this all. New York, in one single night, 
has lost, by fire, property sufficient to pay the expense 
of abundantly supplying herself with water three times 
over. The same principles would teach us the impor- 
tance of accurate surveys of the coast, the erection of 
light houses, and of wise and judicious laws for the gov- 
ernment of pilots. 



31 



362 



BOOK FOURTH. 



OF CONSUMPTION. 



CHAPTER FIRST. 

OF THE NATURE AND DESIGN OF CONSUMPTION. 

Of the nature of Consumption. Consumption is the 
destruction of value. By this is not meant the annihi- 
lation of the material, but only of a particular form of 
utility. Thus, if gunpowder be burned, if bread be 
eaten, if a tree be felled, the particular utility which 
each originally possessed, is destroyed forever. And 
this destruction of value takes place, altogether in- 
dependently of the result which may in different cases 
ensue ; because that destruction is as truly effected in 
one case as in another. A load of wood, when it has 
been burned, as truly loses its utility, that is, its power 
of creating heat, when it is destroyed in a conflagration, 
as when it is consumed under a steam boiler, or in a fire 
place, though the result in the two cases, may be very 
dissimilar. If bread be thrown into the sea, its utility is 
destroyed, just as much as if it were eaten ; though, in 
the one case, there is no result from the consumption, 
and, in the other, it is the means of creating the vigor 
necessary to labor. 

Hence consumption, viewed simply by itself, may be 



NATURE OF CONSUMPTION. 363 

considered in the nature of a misfortune. It is the de- 
struction of so, much wealth as is consumed. A man, 
if he had his choice, would rather create one product 
without destroying another ; or enjoy a gratification, if 
it were possible, without rendering the thing enjoyed use- 
less. But, inasmuch as it is the law of our Creator that 
we shall obtain our possessions, and gratify our desires, 
on no other conditions than that of the destruction of 
value, we have no choice. We cannot cut up a hide of 
leather for the purpose of making shoes, without destroy- 
ing forever its utility as a hide of leather. We cannot 
cut down a tree, and saw it into boards, without destroy- 
ing forever its utility as a tree. We cannot enjoy the 
pleasure of eating an orange, without destroying for- 
ever the power in that orange of affording to any one 
else the same pleasure. And thus, in general, con- 
sumption is one part of an exchange, in which we sur- 
render one value with the hope of obtaining another : 
and whether the hope be realized or not, the value con- 
sumed is surrendered, and surrendered forever. 

When, however, it is said, that the utility consumed 
is destroyed forever, we mean only to speak of this 
particular utility. There may yet remain some valuable 
quality which has not yet been affected. Thus, if a 
linen garment be worn out, its utility as a linen garment 
is destroyed forever. It may, however, still possess an 
important utility, as a material for the manufacture of 
lint or of paper. Wood may be consumed for fuel ; 
and its utility as fuel may be destroyed forever. A 
quantity of ashes however remains, which possesses an 
utility for the manufacture of soap. A pair of India 
rubber shoes may be worn out, and yet possess a valu- 
able utility to the manufacturer of India rubber cloth. 
Hence we see the importance, in all cases, of entirely 
exhausting all the values contained in any product before 
we surrender it up as worthless. For the want of this 
care, millions of property are annually wasted. The 
difference between the cost of two establishments, in the 
one of which every utility of every substance is consum- 
ed, and in the other of which, only the first utility is con- 



364 KINDS OF CONSUMPTION. 

sumed, is frequently as great as the nett profits realized 
in the ordinary employments of industry. 

1. Consumption may be either of labor or of capital. 
A mechanic who bestows a day's labor upon a table, 
consumes that amount of labor upon it. He also con- 
sumes the material upon which he has labored. He has 
received in return the table, and, if his labor and capital 
have been well employed, the result will recompense 
his consumption, both of labor and capital. So he 
who employs laborers to work for him, consumes all 
the labor which he purchases. Hence we see that 
every day spent, is, in fact, so much value consumed. 
If it bring no profitable result, it is so much value wasted. 

2. Consumption may be either voluntary or involun- 
tary. It is voluntary when it is effected by design. It 
is involuntary when it is the result of accident. In either 
case, if there be consumption, there is value destroyed. 
The difference is, that, in the one case, there is a profit- 
able result expected ; in the other case there is none. 
If a loaf of bread become mouldy by neglect, its value 
is destroyed, just as much as though it were eaten. The 
difference is, that, in the one case, the loss is total ; in 
the other case, the consumption of value creates a power 
to labor, which is of more value than the loaf itself. If, 
for the want of a fender, the fire fall out of the fire place, 
and burn the carpet, the carpet is as effectually consum- 
ed as if it were worn out by use. The difference is, 
that, in the one case, it affords a substantial convenience, 
and in the other it affords none. If, by forgetfulness or 
neglect, a gate is left unlatched, and it is beaten in 
pieces by the wind, it is as effectually consumed, as by 
the wear of several years. The difference is, that, in 
the one case, it answers for a long time the purpose of 
inclosure, in the other case it answers no purpose at all. 
Hence, the necessity of care and vigilance in all the 
business of life. Almost every thing is constantly tend- 
ing to consumption. Vegetable matter decays. Animal 
matter putrefies. Most of the metals may be corroded. 
Almost all our possessions are liable to accidental de- 
struction, from fire, or flood ; from the frosts of winter 



' KINDS OF CONSUMPTION. 365 

or the heat of summer. Hence, without our continual 
care, a continual process of consumption will be going 
on, by which our capital will be diminished. 

3. Consumption is either rapid or gradual. The 
consumption of wood for fuel is rapid. The consump- 
tion of wood, in consequence of the wear of a dwelling 
house, is gradual. But gradual consumption is as sure 
and as certain as though it were rapid. Hence, in esti- 
mating cost and expenses, unless an allowance be made 
for wear and tear, our calculations will not agree with 
the fact. If a man's furniture be wearing out every 
year, this average of loss, is as much to be taken into 
account, in estimating his expenses, as the cost of the 
fuel which he consumes. 

The annual consumption of an individual, is the sum 
total of all the values which he destroys. Hence the 
materials upon which he operates, the tools which he 
wears out, the expenses of his household, both for ma- 
terials and for labor, are all to be reckoned as parts of 
his annual consumption. So, also, the values destroyed 
by a nation, are the national consumption. The exports 
of an individual or of a nation, are a part of individual 
or of national consumption, since value to the full amount 
of the exports, is abstracted from the capital of the 
country. On the contrary, the imports are the product, 
or what the country receives back again in return for its 
exports or consumption. 

Every man in the country is a consumer. Without 
consuming he could not sustain life a day. He must 
consume the food which he eats, the clothes which he 
wears, and the dwelling that shelters him. Hence, if he 
do not produce any thing, he is an absolute and useless 
burden upon the community. If he do not produce as 
much as he consumes, he is by the whole amount of that 
deficiency an unprofitable member of the body politic. 

A man cannot, honestly, consume more than he pro- 
duces. And the more he produces, the more may he 
consume. Hence, the more industrious and the richer 
the community, the greater will be the consumption, and 
of course the demand. Hence, as we have said before, 
31* 



366 DESIGN OF CONSUMPTION. 

the richer the community, the better will it be for every 
class of producers. 

II. Of the design of Consumption. Consumption, 
as we have said, is the destruction of value. But no 
man in his senses, will consume value without some ex- 
pectation of advantage. Hence, the design of con- 
sumption is always some advantage which cannot be ob- 
tained in any other way. 

This advantage is of two kinds. 1. The increase of 
value ; or, 2. The gratification of desire. 

1. The increase of value. This is the design of con- 
sumption in all the departments of industry. Thus, the 
farmer consumes seed, utensils, rent, manure, labor, and 
food for the sustentation of laborers. These all are ab- 
stracted from his capital, and their value is destroyed, 
either wholly or in part, forever. But he consumes 
them cheerfully, in the expectation that the crop which 
he reaps will replace them, and repay both the interest 
of his capital, and his various outlays for materials and 
labor, and leave him also a suitable recompense for his 
industry and skill. 

The manufacturer, consumes raw cotton, instruments, 
machinery, and labor. The value of these various pro- 
ducts, is destroyed forever. But, by means of this 
destruction, he produces a fabric which repays all his 
consumption, and yields him a reasonable profit. 

The merchant collects the productions of his own 
country, and sends them abroad in his ship. He thus 
consumes these products, and also the wear and tear of 
his ship, and the labor, skill, and subsistence of his offi- 
cers and crew. His return cargo, if the voyage have 
been successful, replaces his cargo exported, pays the 
expense of transportation, and affords him a compensa- 
tion for his labor and skill. 

And thus, in all the operations of industry, the pro- 
cess of consumption, or the destruction of particular 
values for the sake of producing other and greater val- 
ues, is continually going on. And men consume values 
in this manner cheerfully, because they are aware that 
increase of value is to be effected in no other way. 



DESIGN OF CONSUMPTION. 367 

2. The gratification of desire. In this case, the 
value of a product is commonly destroyed, without the 
anticipation of the creation of any other product by 
which it is to be replaced. The purposes for which 
values are consumed in this manner are various. 

1. For the gratification of those desires which are 
necessary to the preservation of life and health. In this 
manner, we consume food, clothing, and shelter. In 
this case, there is combined with the gratification of de- 
sire, a substantial benefit, in the health and vigor which 
we derive from suitable nourishment. 

2. The gratifications of the senses and the tastes. 
We consume values in the gratifications of sense, when 
we expend money for shows, for mere delicacies of the 
table, for luxuries of dress, and for any thing of which 
the only result is, the gratification of a physical appetite. 
In this case, our only recompense consists in the pleas- 
ure experienced in the organ of sense. The pleasures 
of taste, are enjoyed in painting, statuary, architecture, 
music, &c. In this case, besides the gratification of the 
taste, there is also an additional result, in the mental cul- 
tivation and refinement, which such pleasures promote. 

3. Intellectual gratifications. We consume money, 
for this purpose, in the purchase of books and philo- 
sophical instruments, and we consume trme in the study 
and use of them. We here enjoy the pleasure of intel- 
lectual exercise, and also obtain that knowledge, by 
which we are enabled to perform the duties of life wilh 
greater success. 

4. Social pleasures. We gratify our social instincts, 
by hospitality to our friends ; and thus strengthen the 
ties which bind us to the human race. 

5. JMoral pleasures. In benevolence, for instance, we 
expend money for the good of others. In this case, we 
receive gratification in the act itself, and also cultivate in 
ourselves those dispositions, which make us more wor- 
thy of the regard of our fellows, and more well-pleasing 
to our Father who is in heaven. 

We have said that, by consumption, value is de- 
stroyed ; but it is destroyed with the expectation of real- 



368 DESIGN OF CONSUMPTION. 

izing a more valuable result. Hence, we see that the 
character of this consumption, is to be decided by ascer- 
taining how far this expectation has been realized. If a 
product of more value than the time and labor con- 
sumed, be created by the consumption, such consump- 
tion is called productive. Such is the case when a 
farmer consumes labor and capital, worth one hundred 
dollars, and realizes a harvest worth two hundred dol- 
lars. If the product be not equal to the consumption, 
such consumption is called unproductive. If no product 
at all be realized, the consumption is then a total loss. 

And, the same principles apply when consumption is 
effected for the purpose of gratifying a desire. If no 
such result be realized, it is a total loss. If the gratifi- 
cation be of less worth than the value consumed ; or if 
we have obtained a less amount, or less excellent grati- 
fication, than we could have procured by some other 
mode of expenditure, there is always a loss, although it 
may not be total, and the consumption is unwise. 

From what has been said, we may easily see the rules 
by which expenditure of all kinds should be governed. 

1. Inasmuch as consumption is a destruction of value, 
and annihilates forever the particular value which we 
consume, our consumption, for the purpose of producing 
a given result, should be as small as possible. What- 
ever is consumed beyond what is necessary to accom- 
plish our purpose, is so much absolute loss. 

2. The consumption being given, it should be our ob- 
ject to derive from it as large a product or as valuable a 
gratification as possible. Whatever is consumed, that 
does not conduce to this result, in every way of which 
it is capable, is so much utility thrown away. 

When these rules are perfectly obeyed, we enjoy as 
much as our circumstances allow ; and we also enjoy it, 
with as little expense to the means of happiness of oth- 
ers as the nature of the present constitution permits. 

Consumption is of two kinds, Individual and Public. 
Individual consumption, is what the individual consumes 
for his own personal profit or gratification. Public con- 
sumption, is what is consumed by the society, for the 
benefit of the whole. 



369 



CHAPTER SECOND. 

OP INDIVIDUAL CONSUMPTION. 

The consumption of each individual, is the amount 
of value which he destroys, either for his own personal 
profit, or for the gratification of his desires. 

Individual consumption is, then, of two kinds ; first, 
what he consumes for the sake of reproduction, and 
secondly, what he consumes for the gratification of de- 
sire ; or, in other words, what he consumes in personal 
and domestic expenditures. We shall consider these 
subjects separately. 



SECTION I. 

OF INDIVIDUAL CONSUMPTION FOR THE SAKE OF 
REPRODUCTION. 

This is the consumption, which every individual ef- 
fects, who carries on the operations of production. The 
farmer, the mechanic, the manufacturer, the merchant 
are all consumers, and are such in a greater or less de- 
gree, according to the extent of their production. 

Productive consumption requires both skill and labor, 
while consumption for the sake of gratification requires 
neither. It requires labor and skill, so to consume seed 
and manure, &c, as to produce a loaf of bread, but it 
requires neither skill nor labor, to eat it after it has been 
produced. It requires labor and skill so to consume 
wool and dye stuffs as to produce cloth ; and so to con- 
sume that cloth as to produce a suit of clothes, but it re- 
quires no skill or labor to wear them after they have 
been produced. 



370 CONSUMPTION OF CAPITAL. 

On the other hand, productive consumption, is com- 
monly attended with no immediate gratification. The 
farmer may prefer agriculture to manufactures, but he 
would not commonly labor for the mere pleasure of the 
operation. Could he secure his crop with half the pres- 
ent labor, or with no labor at all, he would doubtless 
do so. The case is the same with the manufacturer, or 
any other producer. 

We can rarely use the same value for these two dis- 
tinct and opposite purposes. If a man consume one 
hundred dollars in amusement, or in ostentation, he can- 
not have it also as capital, to be employed in his trade. 
And, not only can he not have it noio, but he can never 
have it again. If it be invested in reproduction this 
year, it may, by the next year, amount to one hundred 
and fifty dollars, and the year after, to two hundred dol- 
lars, and in twenty years it may become five thousand 
dollars. If it be spent on an entertainment, or a jour- 
ney of pleasure, it is lost, and all that it might have sub- 
sequently become, is lost forever. This should be 
borne in mind by every man who wishes to rise to inde- 
pendence. Every dollar which is spent in self-gratifica- 
tion, is so .much capital placed forever out of his power. 
And, on the contrary, every dollar which he invests in 
reproductive employment, may at any future time minis- 
ter to gratification, or it may provide the means of much 
more valuable gratification in subsequent life. 

Consumption is either of capital, or of labor. 

I. Consumption of Capital. 

The principles which we have already endeavored to 
illustrate, would suggest the following rules, respecting 
this part of consumption : 

1 . Our consumption of capital, in order to produce a 
given result, should be as small as possible. The ordi- 
nary maxim is as true as it is common, a penny saved is 
a penny earned. In estimating the profits of any oper- 
ation, it is manifest, that he who has produced a value 
worth one hundred dollars, at an expense of sixty dol- 
lars, reaps a profit of twenty dollars more than he who 
lias produced the same value at an expense of eighty 



CONSUMPTION OF CAPITAL. 371 

dollars. Thus, the farmer should economize to the ut- 
most all his materials. He who saves half a bushel of 
seed, in sowing an acre, enriches himself as much as 
though he had reaped half a bushel more per acre. It 
is said that in China, sowing is always done by drilling. 
One of Lord Macartney's suite estimated that the saving, 
throughout the whole empire, from this improvement, is 
sufficient to feed the whole population of Great Britain. 
The same principle applies to mechanics, manufacturers, 
and all consumers whatever. It is, unfortunately, the 
case, that, from want of care and ingenuity, a much larger 
portion of value is commonly consumed, than is neces- 
sary for the production required. This is specially the 
case with fuel. Probably not more than one tenth of 
the heat given off by wood, is rendered serviceable by 
the common fire place. 

2. We should employ capital, of no greater value 
than is necessary to effect the production intended. 
Hence, every producer should make it an object of in- 
quiry, to ascertain, so far as the present state of knowl- 
edge may enable him, in what manner he may effect his 
purposes, by the least costly materials. The merchant, 
on this principle, should, before making an exchange, 
ascertain what is the cheapest product at home, with 
which he will be able to procure a given amount of a 
product from abroad. Very much of the success of a 
producer, must, of course, depend upon his skill in this 
respect. The discovery of a cheaper dye stuff, of equal 
goodness, or the exchange of one export for another, 
may frequently, of itself, be sufficient to render a man 
independent. I do not, of course, suppose that any 
man will be so simple as knowingly to expend more in 
production than he supposes necessary. To guard him 
against this folly is not my object. It is rather to incite 
every man to a more thorough and intimate knowledge 
of the principles, on which the operation which he con- 
ducts, depends. It is only by such knowledge, that 
improvements in the various departments of industry are 
to be effected. And hence we see the importance of 
knowledge, to every man in the community. 



372 CONSUMPTION OF CAPITAL. 

3. It is important that every utility possessed by any 
substance, be entirely consumed. 

In order to secure this result, attention must be paid 
to two circumstances. First. All the fragments and 
remnants should be, so far as possible, employed to 
some valuable purpose. This principle is well illus- 
trated in the various uses to which the horns of cattle 
are applied. The horn consists of two parts, an out- 
ward horny case, and an inward conical shaped sub- 
stance. The first process consists in separating these 
two parts, by means of a blow against a block of wood. 
The horny exterior is then cut into three portions, by 
means of a frame saw. 

1 . The lowest of them, next to the root of the horn, 
after undergoing several processes by which it is ren- 
dered flat, is made into combs. 

2. The middle of the horn, after being flattened by 
heat, and its transparency improved by oil, is split into 
thin layers, and forms a substitute for glass, in lanterns. 

3. The tip of the horn, is used by the makers of 
knife handles, and of the tops of whips. 

4. The interior or core of the horn, is boiled down 
in water. A large quantity of fat rises to the surface. 
This is sold to the makers of yellow soap. 

5. The liquid itself, is used as a kind of glue, and is 
purchased by the cloth dressers for stiffening. 

6. The bony substance which remains behind, is sent 
to the mill, and, being ground down, is sold to the far- 
mers for manure. 

7. The clippings and shavings, are also sold to the 
farmers for manure, or are used, in small quantities, for 
the manufacture of toys.* 

Now, it is evident, that if any part of this material 
were wasted, the cost of the manufactured articles would 
be higher, and the gain of the producer less. And, we 
also see that he who first discovered the mode of ren- 
dering any one of these portions of a horn useful, must, 
by this single discovery, have made himself rich. 

* Babbage on Manufactures. 



ECONOMY OF LABOR. 373 

And, Secondly. All the values must be consumed in 
the most profitable manner. It frequently happens, that 
a producer wants but one value from a substance for his 
particular purpose, while another and an important value 
remains unappropriated. It is always a matter of im- 
portance to employ, in the best manner, every value 
which a substance is known to possess. Thus, after we 
have derived from wood, all the heat which it can evolve, 
it leaves ashes, which possess an important value. After 
the oil has been expressed from flax seed, the residuum 
is valuable food for cattle. The employment of this 
utility, of course, lessens the price of oil, and increases 
the demand for it. Hence, we see the superiority of 
the economy of large establishments to that of smaller 
ones. A large manufacturing establishment, can carry 
on several distinct operations, for the sake of using these 
secondary utilities. In a small one, this would be im- 
possible, and much must in consequence be wasted. 
Thus, in connexion with a large slaughter-house, I have 
seen a soap and candle manufactory, a manufactory of 
glue, and one of neat's foot oil ; while a large number of 
hogs was fattened with the refuse of these several estab- 
lishments. In this manner, every part of the slaugh- 
tered animal was profitably consumed. In small estab- 
lishments, a large portion of these fragments would be 
wasted. 

II. Consumption of labor. 

The principles above illustrated would teach us : — 

1. To employ precisely as much labor as is necessary 
to accomplish the intended result. 

We should never employ more than is wanted. This 
generates idleness and negligence. One supernumerary 
laborer, is not only useless himself, but he generally re- 
quires the time of two or three others, to bear him com- 
pany in idleness. 

We should never employ less labor than is wanted. 
This produces confusion, and destroys the advantages 
of correct division of labor. It saves nothing to em- 
ploy one person less than is necessary in an establish- 
ment, and to suspend the labor of others several times 
32 



374 ECONOMY OF LABOR. 

in- a day, in order to do the work which that one should 
have accomplished. 

In general, provided, of course, the work be well 
done, the less the consumption of labor the better for 
the producer. Hence, the economy of labor-saving ma- 
chinery. He who, by an ingenious contrivance, is able 
to save the hire of one laborer, will find himself, at the 
end of the year, richer by precisely this amount saved. 

2. We should employ labor at no higher price, than 
is necessary to accomplish our object. 

Every important operation consists of several subor- 
dinate operations, requiring very different degrees of 
skill in their execution. According to these degrees of 
skill, the wages of labor are adjusted. Now, economy 
demands, that labor of no higher price should be em- 
ployed on each several operation, than the importance 
of the operation requires. He who is able so to arrange 
his laborors, as to execute, by labor worth fifty cents, 
what was formerly executed by labor worth one dollar, 
makes a gain of fifty cents a day. Thus, in the power- 
press, the labor of press-work, which formerly employed 
two able-bodied men, is executed, in part, by animal 
force, or by steam power ; and the remainder by women. 
The reduction in price, thus effected, is very consider- 
able. 

But while this is the fact, it is also the fact, that it is 
never profitable to employ laborers incapable of accom- 
plishing the result. If a particular part of an operation 
require skill and labor worth five dollars per day, it is 
better to give this price than to confide it to an incom- 
petent person, who is willing to work for two dollars per 
day. Thus, a good painter of calico patterns, a good 
calico engraver, or dyer, may be cheaper at five dollars 
per day, than an inferior artist, even if the latter would 
perform the labor for nothing. 

We hence see, again, the importance of an accurate 
knowledge of principles, to every one engaged in exten- 
sive production. It is by deep and thorough reflection 
upon every part of the process which he conducts, that 
a manufacturer is able to keep up with, and specially to 



ECONOMY OF LABOR. 375 

add to, the improvements of the age, and to prevent 
himself from being undersold by his more enterprising 
and intelligent neighbors. 

3. The labor paid for, should all be performed. 

Time, as it is frequently said, is money. It is surely 
money to him who pays money for it. And, of course, 
every hour for which he pays, that is spent in idleness 
or uselessness, is so much useless consumption ; or so 
much absolute loss. 

The causes of the waste of labor are various. Some 
of the more common are : — 

1. Want of superintendence. It cannot be supposed 
that laborers, if left alone, and if paid by the day, will 
labor as faithfully as if laboring for themselves. Hence, 
the necessity and the economy of efficient superinten- 
dence. He who employs twenty men by the day, to 
perform a particular piece of work, will find that an ef- 
ficient superintendent will, by preventing idleness, saun- 
tering, and story-telling, save much more than his wages. 
And, hence, I suppose that commonly, where the labor 
is of such a nature as to allow of it, it is cheaper to pay 
by the piece, than the day. In the one case, if a la- 
borer be idle, he wastes his own time ; in the other case, 
the time of his employer. It is easy to perceive which 
case is the more favorable to industry. 

2. Irregularity. This is a great source of waste of 
labor. Where tools are allowed to get out of place, 
materials to be deficient or unsuitable ; or where several 
laborers are obliged to stand idle, to wait for the com- 
pletion of an operation which is done out of season, 
much time must, of necessity, be lost. In a shop con- 
taining a dozen workmen, if each one spend, on an av- 
erage, half an hour a day in looking for misplaced tools, 
or in waiting for materials not at hand, this is a loss of 
more than half the wages of one laborer a day. This, 
in a year, would be sufficient to purchase the clothes of 
a small family. 

3. Defective tools. In order that the economy of la- 
bor may be as great as possible, the tools by which labor 
is saved, should be as perfect as possible ; otherwise, 



376 ECONOMY OF LABOR. 

we derive only a partial benefit from the invention. He 
who employs a man to chop wood, would certainly see 
the importance of furnishing him with a sharp axe. He 
who erects a fence, to save the labor of guarding his 
cattle, will certainly do wisely to keep his fence in good 
order. It is surely less labor to mend a gap in a fence, 
than to be obliged to plant a field a second time, be- 
cause the grain has been destroyed by cattle, which 
that gap permitted to enter. It takes less labor to 
mend a leakage in a mill dam, than to rebuild the dam 
after it has been, by means of that leakage, carried 
away. Hence, we see the importance, of keeping 
every part of an establishment in perfect order, and 
of allowing nothing to be out of repair, if it be possible 
to repair it. 

" I remember," says Say, " being once a witness of 
the numberless misfortunes which a neglectful house- 
keeping entails. For the want of a small latch, the gate 
of the poultry yard was forever open, there being no 
means of closing it externally, and many of the poultry 
were lost in consequence. One day, a fine young pork- 
er made his escape into the woods, and the whole fam- 
ily, gardener, cook, milk-maid, &c, presently turned out 
in quest of the fugitive. The gardener, in leaping a 
ditch, got a sprain that confined him to his bed for a 
fortnight. The cook found the linen burnt that she had 
left at the fire to dry. The milk-maid forgot, in her 
haste, to tie up the cattle in the cow house, and one of 
the loose cows broke the leg of a colt, that was kept 
in the same shed. The linen burnt, and the garden- 
er's work lost, were worth twenty crowns, and the 
colt as much more, so that forty crowns were, in a few 
minutes, lost, for want of a latch that would not have 
cost more than a few sous." [Pol. Economy, Book 
3d, chap. 5.] 

Illustrations of the importance of having every instru- 
ment in order, and in place, are occurring in most es- 
tablishments every day. They teach us, that economy 
of capital, as well as of labor, requires, that everything 
should be done in time, and in season ; that if a tiling 



ECONOMY OF LABOR. 377 

need to be done to-day, we have no means which shall 
enable us to estimate the loss that may ensue, by put- 
ting it off until to-morrow; and, that negligence is as 
much at variance with the laws of our Creator, as abso- 
lute wastefulness, inasmuch as it exposes us to equally 
severe punishments. It would be well, if men would 
remember this, not only in the affairs of this life, but 
still more, in the affairs of another. 

Supposing now that both labor and capital have been 
invested upon the most economical principles. The 
object for which they have been thus invested, is the 
creation of products. Hence, the greater this product 
is, the more successful the investment, the better is it 
for the individual, and the better is it for the commu- 
nity. The object of the farmer is, with a given soil, 
a given expenditure of labor, of seed and of manure, 
to raise the greatest amount of value, in a harvest. 
This will generally, though not always, be as the quan- 
tity. Fifty bushels of common apples will not sell for 
so much as forty bushels of good ones. One hundred 
pounds of coarse wool, will sell for much less than 
one hundred pounds of fine wool. Hence, his object 
should be, from a given expenditure, to derive the 
greatest amount of profit. It is, by thus adjusting his 
expenditure, and thus calculating the results, that an 
intelligent and thoughtful farmer will grow rich ; while 
all around him are remaining stationary or are growing 
poor. 

So, it. is the business of the manufacturer to create, 
with a given expenditure, the greatest amount of value. 
If he can succeed in giving to his cloth a better dye, or 
can produce a more durable or a more tasteful fabric, 
or can adapt it better to the satisfying of any human 
want, its value is, by so much, increased, and he and 
the community are the better for the increased value of 
his production. 

It is evident, that, in order to do this, a systematic 
knowledge of the principles of any employment is neces- 
sary to the individual by whom it is carried on. A man, 
in order to be a skilful producer, must be acquainted 
32* 



378 ECONOMY OF LABOR. 

with the laws of production ; that is, those laws of na- 
ture and of society, which govern the transaction in 
which he is engaged. Hence, we see the importance of 
accurate knowledge, and sound mental discipline, to all 
the classes of society. 

We see, in the above remarks, another illustration of 
the truth, that the benefit of one is the benefit of all, 
and the injury of one is the injury of all. If a man 
economize labor and capital, he increases his own 
wealth, and he also rescues as much as he saves, from 
actual destruction. The whole of this amount may go 
to the further increase of production, or to the satisfying 
of human wants. The more he produces, the greater is 
his wealth ; and the greater is the value which is created 
for the good of the whole community. Hence, we see, 
that he who is honestly promoting his own welfare, is 
also promoting the welfare of the whole society of which 
he is a member. 

And as it is manifestly for the interest of the individ- 
ual, so is it for the interest of the society, that every 
producer should consume as little value, and produce as 
great value, as possible. Hence, we see the impolicy 
of those restrictions, which will not allow the individual 
to purchase and to sell where he pleases. If he must 
give a higher price than is necessary for his material, this 
is, by the difference, unprofitable consumption. If he 
cannot dispose of it where he pleases, this is, by so 
much, unprofitable production, because he is .unable to 
realize from his production as much as he would be able 
to realize, were he left to himself. 



OF PERSONAL EXPENSES. 379 



SECTION II. 

OP CONSUMPTION FOR THE GRATIFICATION OF 
DESIRE. 

By means of the productive consumption above treat- 
ed of, a man procures the means for this second kind of 
consumption. This means, however, it is always to be 
remembered, does not consist of his whole production, 
but only of the excess of production over consumption 
If he live on capital loaned at interest, the case is the 
same. The money loaned is, for the time, consumed. 
The interest paid, is the excess of the production over 
the consumption, and this, of course, is all that he can 
appropriate to the gratification of his desires. 

Consumption for the gratification of our desires, may 
be considered from two points of view. First. Without 
reference to the circumstances of the individual, or to 
the relative value of the various modes of gratification ; 
and, secondly, with reference to these circumstances. 

I. Of consumption without reference to the circum- 
stances of the individual, or the relative value of the mode 
of gratification. 

These purposes have been already alluded to. They 
are generally comprehended under the following partic- 
ulars : 

Expenditures for the necessaries and conveniences of 
living, as food, clothing, and shelter; for the gratification 
of the senses and the tastes ; for the pleasures of intel- 
lect ; for the pleasures of society ; and for moral pleas- 
ures. Under one or other of these simply, or under 
several of them combined, I believe almost all of our 
expenditures may be classed. 

Now if these be considered, irrespective of our cir- 
cumstances, or of the intrinsic value of the gratifications 
themselves, the principles of expenditure, will be, essen- 
tially, the same as those which have been already illus- 
trated. That is to say, if a particular mode of living, 



380 OF PERSONAL EXPENSES. 

or the enjoyment of a particular gratification be determin* 
ed upon, whether that determination be wise or unwise, 
economy teaches us to obtain it most perfectly, and at 
the least possible expense. The question of its wisdom 
or folly, belongs to another part of the subject. A par- 
ticular mode of living having been resolved upon, econ- 
omy will teach us to sustain it, at the least possible 
expense. Hence, in regard to capital, the rules will be : 

1. That the consumption of values be as small as is 
consistent with the accomplishment of our purpose. 
This is opposed to several errors. 

To purchasing nvore of any value than is wanted. 
The articles ordinarily consumed in a family, are rapidly 
destructible. If more be purchased than is wanted, it is 
liable to become useless, and, in this case, the loss of 
this excess is total. By having a superabundance of 
any thing consumable, it becomes, in the eyes of those 
who use it, less valuable, and is used less carefully. 
And, if neither of these results be experienced, if an 
article be purchased a year before it is wanted, the pur- 
chaser loses the interest, for a year, of the money expend- 
ed. Hence, it is generally as economical to purchase 
at retail, as at wholesale. 

Hence, it is commonly wasteful to purchase any thing 
because it is cheap. If a man need any thing, its cheap- 
ness is a reason why he should buy it, but if he do not 
want it, its cheapness is no reason at all. A man may 
buy stones very cheap, but it is doubtful whether he 
would be either enriched or made happier by the pur- 
chase. Many a garret 'is filled with great bargains ; 
which were purchased because they were cheap, and 
then laid away to rot. 

.2. The consumption should be as perfect as possible. 
When we have possessed ourselves of a substance, it 
should not be thrown away, until every utility which it 
possesses, has been exhausted. 

Thus, an article of clothing which will not answer 
any longer for one purpose, may answer very well for 
another. An article of food, which may not be used in 
one form, may be used in some other form. And 



OF PERSONAL EXPENSES. 08I 

hence, in general, nothing should come into a house, un- 
less it be wanted, nor in a larger amount than it is want- 
ed ; and nothing should leave it, until all its utility is 
exhausted. 

3. All the means should be provided for the most 
perfect production and consumption of values. Hence, 
every useful utensil should be furnished, and should be 
the most perfect of its kind. It is cheaper to buy a 
coal-hod, than to carry coal in a basket, and, by saving 
a dollar in a utensil, ruin a carpet worth fifty dollars. It 
is cheaper to have every description of culinary vessel 
that may be needed, than to have food spoiled by being 
cooked in an unsuitable instrument. It is cheaper to 
have a bad fire place altered, at an expense of fifteen 
dollars, than to consume annually ten dollars more worth 
of wood than is necessary. 

Hence, it is also important, that every article pur- 
chased be of such a nature as will admit of the most 
profitable consumption. If a man buy fuel which gives 
ofF very little heat, because it is at a low price, it is by 
no means certain that he has made a successful pur- 
chase. It should always be remembered that we want 
a given amount of utility, and not the mere form in 
which it seems to reside. It is cheaper to purchase a 
dollar's worth of utility for a dollar, than half a dollar's 
worth for seventy-five cents. Hence, the lowest priced 
products are by no means always the cheapest. 

The same principles apply to labor. 

Economy directs, that in a household, we should pur- 
chase as much labor as we need, and of the kind that 
we need, but no more than we need. When we pay 
for useless labor, we throw money away ourselves. 
When we employ incompetent labor, we pay others to 
throw it away for us. 

These, I suppose to be the principal circumstances, 
which should govern our expenditures. And, it will be 
seen, that they apply to all the conditions of men. 
Whether our expenditure be large or small, it should be 
conducted with economy. The object to be attained 
is, to secure as large an amount of gratification, at as 



382 OF PERSONAL EXPENSES. 

small an expenditure as possible. To the man who 
has but two hundred dollars per year to spend, it is cer- 
tainly important to spend it economically. To the man 
who has ten thousand dollars per year, it will generally 
be found convenient. 

Hence, it will be seen, that, in order to enjoy the 
comforts or the luxuries of life, at the least expense, 
care and superintendence, and knowledge of the various 
operations performed in a household, are absolutely ne- 
cessary. And as this department of consumption in gen- 
eral, devolves upon the mistress of a family, we see how 
important to the execution of it with success, must be 
vigilance, care, intelligence, and industry. The husband, 
by the employment of capital, labor, and skill, in pro- 
ductive consumption, secures an annual revenue, for the 
purpose of consumption in the various means of gratifi- 
cation, whether necessary or superfluous. The expen- 
diture of this annual revenue, or the making of those 
arrangements which govern the expenditure, generally 
devolves upon the wife. If that expenditure be made 
without economy, either the gratifications which it might 
procure, are never enjoyed ; and, by all the consumption, 
neither comfort nor pleasure is obtained ; or else, if the 
gratification sought for be obtained, it is obtained at an 
expense absolutely ruinous. Hence, it will be seen, 
that the physical comfort, as well as the means of hap- 
piness of both parties, depends more on the domestic 
education of the female sex than is ordinarily supposed. 
Affection will rarely exist in the atmosphere of self- 
inflicted poverty. No man can respect a woman, by 
whose caprice, and ignorance of her appropriate duties, 
he is plunged into disgraceful bankruptcy, and wedded 
to hopeless penury. Nor let it be supposed that no tal- 
ent is requisite skilfully to superintend a household. It 
requires, at least, as much ability to direct, with skill, 
and on principle, the affairs of a domestic establishment, 
as to select a ribbon or dance a minuet, to finger a piano 
or to embroider a fire screen. 

II. Consumption considered in respect to the relative 
value of the desire. 



OF DIFFERENT MODES OF CONSUMPTION. 383 

The various objects of desire, by the possession of 
which our happiness may be promoted, may, with suffi- 
cient accuracy for our present purpose, be divided into 
moral, intellectual, social, and sensual. 

The attainment of happiness from either of these, 
commonly involves some expenditure of time, or of 
property, or of both. Thus, we cannot by reflection, 
improve our own hearts, without the consumption of 
time, nor cultivate our benevolent sentiments without the 
consumption of property. The improvement of our 
minds by reading and study, "demands both time and 
books. We cannot enjoy the society of our friends, 
without the consumption of both time and property. 
And every one knows that the gratification of our sens- 
es, whether intellectual or corporeal, consumes a large 
portion of the income of every individual. 

It belongs to the teacher of ethics, to show in which 
mode of expenditure a man may best secure his future 
happiness, and act most worthily of the moral nature 
with which he is endowed. The political economist 
looks upon the various modes of expenditure, simply as 
they affect the wealth of the individual, and of the pub- 
lic. Yet, even in this view, it may not be inappropriate 
to offer a single suggestion. Inasmuch as we have been 
created with aptitudes for all these different modes of 
happiness, it is manifestly the intention of the Creator, 
that we should enjoy, not merely one but all of them. 
As we are not merely sensual, but also moral and intel- 
lectual beings, it is as reasonable that we should expend 
a part of our time and property, in the pursuit of moral 
and intellectual, as that we should spend a part of it, in 
the pursuit of sensual gratifications. He who argued 
from the superior dignity of our nature over that of 
brutes, might perhaps urge that the former was the more 
reasonable mode of expenditure. But the dignity of the 
race not belonging to the province of the political econ- 
omist, we shall not consider the subject in this point of 
view. 

The principles upon which political economy would 
teach us to select our modes of gratification, are, I sup- 



384 OF DIFFERENT MODES OF CONSUMPTION. 

pose, the following. First. Where the amount of 
gratification in two cases is equal, it is wise to choose 
that which is the least expensive. The reason for this 
is Loo obvious to need much illustration. If a particular 
gratification can be procured for one hundred dollars, 
and another, which will afford an equal amount of happi- 
ness, can be procured for ten dollars, the cheaper is to 
be preferred ; because, while, in this case, we obtain an 
equal gratification, we have ninety dollars remaining with 
which to purchase other objects of desire. Secondly. 
When two modes of gratification are, in themselves, 
equally productive of happiness, but of which, one tends 
to the wealth, and the other to the poverty, both of the 
individual and of society, the former is to be preferred. 
Thus, if it cost the same sum to spend an evening in in- 
tellectual improvement, that it would cost to spend it in 
a drunken frolic, and the pleasure in the two cases were 
the same ; inasmuch as intellectual cultivation tends to 
knowledge, which is a valuable consideration to every 
producer, and a drunken frolic has no such tendency, 
economy would teach us to spend the evening in intellec- 
tual cultivation. 

If, now, we compare the various modes of expendi- 
ture most common among men, I think that we shall find, 
that the economy of the moral and intellectual pleasures 
is somewhat overlooked. 

The expenditures for all the real wants and conven- 
iences of a human being, may, by industry and frugality, 
without great difficulty, be supplied. It does not cost 
much, to provide all that we need for wholesome and 
palatable food, for comfortable clothing and shelter, and 
for all the furniture demanded for convenient domestic 
arrangements. Our greatest expenses are for those ob- 
jects, which yield no other utility than the mere gratifi- 
cation of the senses, or, which are rendered necessary, 
by command of fashion, or the love of ostentation. 
Thus, in the purchase of a garment, or of an article of 
furniture, a part of the price is paid for the real utility 
which it possesses, and the remainder for that particular 
form, or color, or workmanship, which is designated by 



OF DIFFERENT MODES OF CONSUMPTION. 385 

fashion. Now, it frequently happens, that this latter 
portion of the price is far greater than the former. The 
same may be said of many of our expenses of the table, 
and of various others. 

Now, that men should not, if they have the ability, in 
any manner gratify their senses, and yield obedience to 
fashion, it is not necessary here to affirm ; nor is it ne- 
cessary that political economy should prescribe the limit, 
within which these gratifications shall be confined. A 
few considerations, for the sake of illustrating the com- 
parative economical advantages of other modes of grati- 
fication, is all that will be here attempted. 

1. Moral and intellectual pleasures are by no means 
expensive. To spend time in moral cultivation, is no 
more expensive than to spend it thoughtlessly and frivo- 
lously . The time consumed in thoughtless dissipation, 
if employed in moral culture, would be sufficient to effect 
great changes in our habits and tastes. 

The pleasures of benevolence, so far as pecuniary 
consumption is concerned, are less expensive than those 
of the senses. Were the sums lavished in thoughtless 
caprice, in obedience to fashion, or in the gratification 
of appetite, to be reserved for charity, how great an 
amount of happiness might be created both in the bene- 
factor and the recipient. 

The same may be said of intellectual pleasures. 
Books, and all the means for intellectual gratification, 
may be had at an expense within the reach of a very 
large class of the community. The useless ornaments 
of a drawing room, would frequently purchase a consid- 
erable library. The sums of money annually paid, by 
most families, to satisfy the demands of fashion, would 
provide them with as much reading as they would desire. 
Now, when these two kinds of pleasure are equally set 
before us, and when the one may be procured at so 
much less expenditure than the other, it surely is worth 
the attention of every man, deliberately to inquire by 
which mode of investment he will best secure his own 
happiness. There seems something ill-adjusted, when 
the habitation of a moral and intellectual being, reminds 
33 



386 OP DIFFERENT MODES OF CONSUMPTION. 

us of every thing else than, that he is either moral or in- 
tellectual. 

2. Moral and intellectual pleasures tend to the wealth 
both of the individual and of society. 

The exercise of benevolence has several important 
economical tendencies. For instance, it tends directly 
to cultivate the habits of self-denial and self-government, 
which are so essential both to industry and frugality. 
Sensual self-indulgence tends directly to produce both 
indolence and capricious and reckless expenditure. 

Again. The habit of benevolence tends to moderate 
and correct that intense love of gain, which is so fre- 
quently the cause of ruin to enterprising men. In the 
management of any hazardous business, he will be the 
most likely to succeed, who looks with entire coolness 
on the chances of loss and gain. The too eager, gov- 
erned by their imagination, rush into needless danger. 
The too cautious allow a fair prospect of advantage to 
pass by unimproved. The one is as liable to fail as the 
other. He who, by the practice of benevolence, has 
learned a more accurate estimate of the blessings of 
wealth, will more probably than either, judge correctly. 
The miser and the sensualist will fall into opposite ex- 
tremes, one upon each side of him. 

Besides, the social benefits of benevolence are incal- 
culable. It unites together the various classes of men, 
">y the strong ties of affection and gratitude. By bring- 
ing all classes of men more directly under the view of 
foe whole mass of society, social responsibility is in- 
creased, and the encouragements to virtue and the re- 
straints upon vice are strengthened. When the rich are 
.4ard-hearted and luxurious, the poor are disaffected, 
anti-social, and destructive. In so far as benevolence, 
therefore, tends to the improvement of the social dispo- 
sitions of men, it may lay claim to great economical ad- 
vantages. 

And the same is true of intellectual pleasures. A 
man cannot enjoy these without improving his mind, and 
rendering it a more valuable instrument both for the pro- 
duction pf his future happiness, and the accumulation of 



OF DIFFERENT MODES OF CONSUMPTION. 387 

wealth. Knowledge is power, in what sphere of life 
soever it be exerted. The gratification of the senses 
enervates the body, enfeebles the mind, and tends to 
render intellectual exercise unpleasant, and to unfit us 
for any important or highly responsible exertion. 



388 



CHAPTER THIRD. 

OF PUBLIC CONSUMPTION. 



SECTION I. 

OF TAXES, OR THE MANNER IN WHICH PUBLIC 
EXPENDITURE IS PROVIDED FOR. 

We have thus far treated of individual consumption, 
or of that destruction of values effected by the individ- 
ual, in the accomplishment of his own purposes ; and for 
the gratification of his own desires. But, all the capital 
produced by a society, is not expended in this manner. 
A part of the annual revenue of every individual, is con- 
tributed in some manner to the public, and is expended 
by the agents of the public, that is, by the government. 
This part remains to be treated of, under the head of 
public consumption. 

This expenditure is provided for by means of taxation. 
When a given sum is to be raised for the accomplish- 
ment of any object, it is, by some mode of assessment, 
distributed among the various individuals of the commu- 
nity, and every one is obliged to pay the proportion with 
which he is charged. The sum thus collected is then, 
for the accomplishment of particular purposes, consumed 
by the agents into whose hands it is delivered. The 
consumption itself is of precisely the same nature as that 
effected by individuals, that is, the value is destroyed ; 
and the utility consumed, is annihilated. If an individual 
burn gunpowder, the value in time and material by which 
it was produced is destroyed ; if a hundred or a thousand 
men do it, the result is the same. If a man in the dig- 
ging of a ditch consume the labor of a thousand work- 



OF PUBLIC EXPENDITURE. 389 

men, and use the provisions necessary for their susten- 
tation, the whole value, thus expended, is annihilated. 
And if a thousand men unite in the undertaking, the an- 
nihilation is the same. This is really so evident, that to 
illustrate it at length seems almost childish. Does any 
one doubt when a house is burnt down, whether the value 
of a house is or is not consumed, because the owner did 
not set fire to it himself. Does any merchant doubt, 
whether his property is diminished or not, when it has 
been wasted by a profligate clerk ? In a word, govern- 
ment is nothing but a system of agencies ; and property 
consumed, by the government, rs as really consumed, 
and its value as really destroyed, as though the individual 
citizens consumed it themselves. 

Now, this being the fact, the rule by which consump- 
tion is to be judged of, is precisely the same, whether it 
be public or private. If the product created by the 
consumption, whether that product be material or imma- 
terial, be of greater value than the product consumed, it 
is profitable consumption ; that is, the public receive in 
return a greater value than they parted with. If a less 
valuable product be created, than is consumed, it is .un- 
profitable consumption, and the value might better have 
remained in the hands of individuals. If no product 
whatever be realized, it is a total loss ; and the value 
taken from the individual might as well have been thrown 
into the sea. Nay, had they themselves thrown the val- 
ue consumed into the sea, there would have been a gain, 
in the amount of the expense of collecting and consuming 
it. And still more, if the value consumed produce no 
valuable result, but, on the contrary, be employed to 
promote the purposes of oppression and misrule, the 
evil is enormous. The possessions of the individual are 
taken away, not only without rendering him an equiva- 
lent, but for the sake of employing other men to torment 
him, and deprive him of his dearest rights. 

It is very frequently asserted, that public expenditure 
enriches a country, or that, at least, it is wholly inno- 
cent, since it quickens the circulation of money, and 
does no harm, inasmuch as all the money always remains 
33* 



390 OF PUBLIC EXPENDITURE. 

in the country. To obviate such an objection, let us 
trace, from first to last, the passage of a product towards 
ultimate consumption, on the public account. The gov- 
ernment exacts from the tax payer, the payment of a 
given sum in the shape of money. To meet this de- 
mand, the tax payer exchanges part of the products at 
his disposal, for coin, which he pays to the tax gatherer. 
A second set of government agents is busied, in buying, 
with that coin, clothing and other necessaries for sol- 
diery. Up to this point, there is no value either lost or 
consumed ; there has only been a gratuitous transfer of 
value and a subsequent act of barter, but, the value con- 
tributed by the citizen, still exists in the shape of stores 
and supplies in the military depot. In the end, how- 
ever, this value is consumed, and then the portion of 
wealth which passes from the hands of the tax payer, 
into those of the tax gatherer, is destroyed and annihilated 

" Yet, it is not the sum of money., that is destroyed ; 
that has only passed from one hand to another, either 
with or without any return, as, when it passed from the 
tax payer, to the tax gatherer ; or in exchange for an 
equivalent, as when it passed from the government agent 
to the contractor, for clothing and supplies. The value 
of the money survives the whole operation, and goes 
through three or four, or a dozen hands, without any sen- 
sible alteration. Il is the value of the clothing and ne- 
cessaries that disappears, with precisely the same effect, 
as if the tax payer had, with the same money, purchased 
clothing and necessaries for his own private consump- 
tion." * 

The consumption, then, is of the same nature, wheth- 
er it be public or private. It is a destruction of value; 
and the rule, by which we are to determine whether it 
be profitable or unprofitable, is the same in both cases. 
It is, by inquiring, whether the benefit created by the 
consumption, is greater than, equal to, or less than, the 
value of the product consumed. 

While, however, this rule is always to be adopted, it 
is, as in the case of individual consumption, to be inter- 

* Say. 



OF PUBLIC EXPENDITURE. 391 

preted with a liberal and intelligent forecast. It must 
not, of course, always be expected, that the product 
created by consumption, will be a visible, tangible, ma- 
terial substance. Thus, we see no physical, tangible 
product, as the result of taxes for the support of civil 
government. But, we receive the benefit in security of 
persons, property, and reputation ; or in that condition 
of society, which, though it be incapable of being 
weighed and measured, is absolutely essential both to in- 
dividual happiness, and individual accumulation. The 
same may be said, in substance, concerning the taxes 
paid for general education. Here, whether the tax pay- 
er receive his remuneration in instruction given to his 
own children, or not, he yet receives it, in the improve- 
ment of the intellectual and social character of his neigh- 
bors, by which his property is rendered more secure, 
the labor for which he pays is better performed, and the 
demand for whatever he produces, is more universal and 
more constant. The same may be said of that public 
expenditure, by which the moral and social character of 
a community is elevated, the taste of a nation refined, 
and an impulse given to efforts for the benefit of man. 
With this view, no one could oppose the expense incur- 
red in bestowing upon public edifices elegance, or even, 
in some cases, magnificence of structure ; in the public 
celebration of remarkable eras ; and in the rewards be- 
stowed upon those who have by their discoveries enlarged 
the boundaries of human knowledge, or, by their inven- 
tions, signally improved the useful arts. Political Econ- 
omy is opposed to none of these forms of expenditure ; 
all that she requires is, that a valuable consideration be 
received in return for the consumption ; and that the 
consumption be not disproportionate to that considera- 
tion. 

Of the different modes by which the public expendi- 
ture is provided for. 

Taxes are of two kinds, direct and indirect. 

A direct tax, is a certain amount assessed upon every 
individual, in proportion to the property which he is 
known to possess. In many of the towns of New Eng- 



392 OF PUBLIC EXPENDITURE. 

land, an annual tax list is made out, in which the portion 
which every taxable inhabitant must pay, towards sup- 
porting the expenses of the district, is specified. The 
apportionment is made out by persons appointed for the 
purpose, called assessors. If any individual consider 
himself as taxed too highly, he is at liberty to appear, 
and declare upon oath, the amount of property of which 
he is possessed. His assessment is then graduated, ac- 
cording to the amount to which he has sworn. 

An indirect tax, is levied upon articles of production, 
at some period during their passage from one possessor 
to another. Thus a tax, or as it is called a duty, is laid 
by this country on various goods imported from abroad, 
immediately on their arrival. This duty is paid by the 
merchant who receives them ; and he adds this duty to 
the cost of the goods, when he sells them to the next 
purchaser. Thus, the price of the product is raised, by 
this amount, when it comes into the hands of the con- 
sumer. If broadcloth pay a duty of two dollars a yard, 
he who buys a yard of broadcloth pays two dollars a 
yard more for it than he would pay if there were no du- 
ty to be paid. If coal be taxed two dollars a ton, as it 
is at present, every consumer of foreign coal pays two 
dollars a ton more than he would pay if no such tax 
were exacted. The effect of this tax is also to keep 
the price of all other coal two dollars a ton higher than 
it would otherwise be. 

Now, supposing the same sum were to be demanded 
for the service of the public, it may be asked, which 
mode of raising it is to be preferred. 

In favor of an indirect tax it may be urged, that it is 
raised with more convenience, and less liability to per- 
sonal collision, between the tax payer and the tax 
gatherer. 

The imports of a country are all received at a 
comparatively small number of places, denominated 
ports of entry. Goods arriving at these places are all 
charged with the duty on their arrival ; and thus, the col- 
lection may all be accomplished in a short time, and 
with very little trouble. Besides, as the importer, who 



OF PUBLIC EXPENDITURE. 393 

pays the duty, receives it back again from the purchaser 
of the goods, it seems to him a matter of small impor- 
tance whether it be high or low, and he is disposed to 
make but little trouble about it. The case is the same 
with every succeeding purchaser, until it comes at last 
to the consumer. The consumer may feel that the prod- 
uct is dear, but, if it be no dearer than it has been be- 
fore, he thinks but little about it ; and, if it be some- 
what dearer than formerly, the rise and fall in the price 
of goods is so common a thing, that he imputes the dif- 
ference to any other cause, as soon as to the additional 
duty paid to the government. Hence, it is frequently 
said, that people do not feel an indii^ect tax, which 
means, I suppose, that they do not know, either how 
much they pay, or when they pay, or whether they pay 
or not. 

On the contrary, it is, doubtless, the fact, that men 
feel direct taxes more sensibly, that is, they know when 
they pay them, and how much they pay. Here, then, 
is liability to ill feeling, and sometimes to resistance ; 
and, moreover, there is a possibility, that an excessive 
parsimony may restrict the public means in such a man- 
ner, as to prevent the execution of works of real utility, 
if not of imperative necessity. 

There is, however, a greater liability of injustice in 
indirect than in direct taxation. As, when duties are 
laid upon goods, the tax payer knows very little of the 
amount paid, and is hence less careful to inquire on 
what principles the revenue is raised ; there is a greater 
opportunity, afforded, in this manner, of imposing the 
public burdens unequally, and of imposing them for 
purposes at variance with the principles of the social 
compact. Hence, a majority may impose taxes for the 
benefit of a part, and not for the benefit of the whole ; 
and the matter can easily be so mystified, that the suf- 
ferer can excite but little sympathy. I do not deny 
that direct taxation is liable, in some cases, to the same 
abuse, as, for instance, when the city and country inter- 
ests strive to shift the burden of taxation upon each oth- 
er. I only say, that the evil is not so liable to happen 



394 OF PUBLIC EXPENDITURE. 

in the one case as in the other, and when it does hap- 
pen, it is more readily exposed. 

Aside from the irregularity in the assessment of indi- 
rect taxes, it may be observed, that, in their very nature, 
they are liable to objection, because they do not im- 
pose the public burden in any manner in proportion to 
the share which the individual receives of public pro- 
tection. The indirect tax is paid by the consumer. 
Hence, he pays, not according to the benefit which he 
receives from the existence of civil government, but ac- 
cording to the amount of production which he consumes. 
Hence, he who possesses a million dollars' worth of 
property, if he consume no more than he who lives by 
his daily labor, will pay no larger share of the public bur- 
den. Hence, a manifest inequality is involved in the 
original conception of an indirect tax. 

The same remark may, however, be applied in part to 
direct taxation. It may be said, that the tax payer here 
raises his price, in such a manner that he only pays a 
part of the tax assessed upon him, and that the remain- 
der is paid by the consumer. This is, in part, true, but 
I think not by any means to the extent that it is true of 
indirect taxation. He whose actual property is taxed, 
cannot raise the price of his commodities, with such ac- 
curacy as the merchant, but must bear his proportion 
without the ability of so readily shifting it upon another. 
Hence, direct taxes, if equally imposed, are commonly 
more just ; that is, they derive the support of govern- 
ment from the individuals, more in proportion to the 
degree of benefit which each derives from the govern- 
ment. 

In favor of direct taxation, it may also be added, that 
it is decidedly more in harmony with the genius of a re- 
publican or representative government. Such a govern- 
ment, proceeds upon the principle that the people are the 
fountain of power, and are competent to govern them- 
selves. Now, such a government ought not, surely, to 
act upon the directly opposite principle, that the people 
ought not to know what theij pay., or tchen or hoic they 
pay. They are the party, from which, especially, noth- 



PRINCIPLES OF TAXATION. 395 

ing of this sort should be concealed. They should 
know what, and how much, they contribute ; and, also, 
in what manner whatever they contribute is expended. 
It is in this knowledge, and in the judicious use of it, 
that their safety consists. To me, therefore, the consid- 
eration, so frequently urged in favor of indirect taxation, 
that the people do not feel it, is one of the strongest 
arguments against it. The more a people feel taxation, 
and the more jealously they watch over the public ex- 
penditure, the better it is for them and for their rulers. 

Of the principle by which taxation should be regu- 
lated. 

I have already stated that the several members of a 
society, should be taxed in proportion to the benefit 
which they receive from a government. Thus, if a 
government protects for one man, one hundred thousand 
dollars' worth of property, and for another only one 
thousand dollars' worth, the former should pay one hun- 
dred times as much towards the public expenses, as the 
latter. So far as this is evidently just. But it may be 
questioned whether justice might not go somewhat fur- 
ther, inasmuch as, a percentage of his income, which 
would not abridge even the luxuries of the rich, might 
materially curtail even the necessaries of the poor. But 
whether the rich ought to be taxed more than a pro rata 
proportion or not, I think it evident that taxes should be 
so arranged, that individuals should, in so far as possible, 
pay in proportion to their property ; that is, in propor- 
tion to the amount of protection which they receive of 
the government. Now, inasmuch as indirect taxation, 
if laid indiscriminately, would apportion the public bur- 
den on no such principle, it is evident that such taxa- 
tion should be made discriminately ; that is, that articles 
of necessity should be either exempt from taxation, or 
taxed very lightly ; and articles of luxury, or those used 
chiefly by the rich, should bear the greater part of the 
burden. 

This would lead us to the folic .ving conclusions : 

1. Property below a certain amount, might very 
properly be exempt from taxation. 



396 PRINCIPLES OF TAXATION. 

The poor man's clothes and bedding, his cow and his 
pig, should never be enumerated among taxable prop- 
erty. 

2. The necessaries of life, if taxed at all, should be 
taxed at the lowest rates. Of these, the rich and poor 
must consume nearly equal quantities. But they con- 
sume only a fraction of the rich man's income, while 
they consume almost the whole of the poor man's earn- 
ings. A tax on bread stuffs, fuel, coarse clothing, or 
iron, diminishes, essentially, the comforts and even the 
necessaries of life, of a very large proportion of every 
community. 

3. Taxation should be the heaviest upon articles of 
luxury and ostentation ; not for the sake of interfering 
with these modes of pursuing happiness, but because 
those who are able to expend in this manner, are able to 
bear, with the least inconvenience, the expenses of gov- 
ernment. The conveniences of living, and the means of 
accumulation, should bear the next portion of the bur- 
den. He who is able to furnish himself with the con- 
veniences of living, is always able to pay a portion of the 
expenses of government ; and he who possesses means 
of accumulation, can always devote some part of that 
which is annually accumulated, to pay for the protection 
which he receives. Thus, carpeting, is a more fit sub- 
ject for taxation than bread stuffs or fuel. Thus, also, 
a farmer's wagon, or a merchant's ship, may justly be 
taxed, but they ought not to be taxed in the same pro- 
portion as a gentleman's coach. I have spoken of the 
expenses of civil society, as a public burden. It ought, 
however, to be remarked, that this is one of the burdens 
which a good citizen should be the most willing to sus- 
tain ; as it is a mode of expense, for which he receives a 
most abundant equivalent. If any one doubt this, let him 
ask himself, what expense would be necessary to secure 
for him, and his property, that protection which he now 
receives in return for the trifling sum which he pays in 
taxes. The sum paid for the necessary expenses of 
civil government, is very trifling, when compared with 
lhat which is annually expended in journeys of pleasure, 



EXPENSES OF CIVIL GOVERNMENT. 397 

in luxuries of the table, in ornaments of dress, nay, in 
profligate amusements, and vicious indulgences. Every 
good citizen, while he is under obligation vigilantly to 
watch over the manner in which public money is appro- 
priated, is bound to contribute, cheerfully and liberally, 
for every purpose required by the public good. 

It will scarcely be necessary to add, after what has 
been said, that a surplus revenue is a public nuisance. 
It gives to the government a control over the monetary 
affairs of the country, at the best, dangerous ; and a con- 
trol which is very liable to be exerted for the promotion 
of party purposes. It hence gives an additional, an un- 
necessary, and a dangerous power to a majority, and 
gives them the means of perpetuating that power, indefi- 
nitely. It is taking productive capital from the hands 
of the owners, and vesting it in hands where there is 
every temptation to spend it uselessly, if not viciously. 
The world has never yet seen a government so pure, that 
it would not become corrupt, if a surplus revenue were 
permanently placed at its disposal.* 



SECTION II. 

OP THE PURPOSES FOR WHICH THE PUBLIC 
REVENUE IS COMMONLY EXPENDED. 

The funds of the public, after they have been col- 
lected, are most commonly expended for some or for 
all of the following purposes. The support of Civil 

* Of that portion of the late surplus revenue which has been dis- 
tributed among the States, the greater part has already been appropri- 
ated to internal improvements of very doubtful utility. No man can 
look upon such a waste of property without pain, especially^ when he 
remembers, that these millions were raised by obliging the 'poor man 
to pay a higher price for his coat, his axe, his loaf of bread, his salt, 
and his fuel. 

34 



398 EXPENSES OF CIVIL GOVERNMENT. 

Government ; Education of the people ; The mainten- 
ance of the institutions of Religion ; National improve- 
ments ; Pauperism ; and War. Of these, we shall now 
proceed to treat in their order. The principles which 
we have already illustrated, will, however, render it un- 
necessary to consider them at great length. A few re- 
marks upon each, will be all that we shall here attempt. 

I. Of expenses for the support of civil government. 

This is by far the most necessary of any of the 
objects of public expense. Without government there 
could be no society ; and without society, there could 
neither be redress of wrong, nor security of property. 
But government cannot be administered without officers, 
and no one will devote himself to the discharge of the 
duties of civil office, unless he be paid for it. 

The principles which should govern this branch of ex- 
penditure, are therefore few and simple. 

1. Economy requires, that precisely such talent should 
be employed, in the various offices of civil government, 
as may be necessary to insure the discharge of the duties 
of each office, in the best possible manner. Many of 
these offices, can only be discharged successfully, by the 
first order of human talent, cultivated by learning and dis- 
cipline, and directed by incorruptible integrity. Now it 
is certainly bad economy, to employ inferior talent to do 
badly, that which can only be of any service when it is 
done well. 

2. Hence, the salaries of judicial, legislative, and ex- 
ecutive officers should be such as will command the ser- 
vices of such talent as the duties of each office require. 
It is most unwise parsimony, to give to a judge such 
a salary as will command the services of nothing more 
than a third rate lawyer ; and it is mean to ask an indi- 
vidual to do a service for the community, at a lower rate 
than that at which he would do it for an individual. 

In answer to this, it may be said, that, by bestowing 
large salaries upon the officers of government, we pre- 
sent temptations to avarice. But, I reply, the reduction 
of salaries, by no means diminishes the evil. Were 
emolument to be reduced, there would always be a con- 



EXPENSES FOR EDUCATION. 399 

test for office. The only question then is, whether we 
shall have the contest between men of high or between 
men of low character ; between those who are capable 
of serving us to our advantage, or those who are only 
capable of serving us to our disadvantage. Were the 
most important trusts in the government to command no 
higher salaries than the wages of day laborers, there 
would be as great competition for them as at present ; 
only, then, the contest would be between day laborers, 
instead of being between men of professional ability. 

Here, however, I am willing to allow that the princi- 
ples of wages formerly illustrated, should have their full 
effect. For instance, where an office confers rank, or 
dignity, or indicates professional eminence, the emolu- 
ment should be less than would otherwise be paid for the 
same amount of service. Again : when an office is per- 
manent, the emolument should be less than when it is 
temporary. But, on the other hand, if it be insisted 
upon, that neither rank nor consideration shall be allowed 
to the public officer, but that all men are and must show 
themselves to be, on a level ; the remuneration of office 
should be higher. And also, when an office is tempo- 
rary, and the having held it, disenables the incumbent 
for subsequent professional employment, the remunera- 
tion should rise accordingly. In such cases, a pension 
should be attached to the office, if its duties, for a given 
time, have been faithfully discharged. 

II. Of expenses for the purpose of education. 

1. Education is of two kinds, common and scientific. 
Common education, is limited to the teaching of those 
branches of which a knowledge is necessary in the pur- 
suit of the ordinary occupations of life. This is a 
proper object for national expenditure, because it is for 
the interest of every man, that every other man should 
be acquainted with the elements of learning. Specially 
is this the case in a representative government. 

A question, however, occurs, both as to the manner 
in which such a revenue should be raised, and the man- 
ner in which it should be distributed. It may, for in- 
stance, be raised like any other tax, and paid into the 



400 EXPENSES FOR EDUCATION. 

public chest, and the teachers be paid as officers of the 
government. Or, it may be raised in the different dis- 
tricts in which the schools are to be supported, and paid 
into the hands of district officers, who both oversee the 
schools and employ the teachers. The latter seems to 
be the preferable method. In this manner, there will be 
by far the most lively interest maintained in behalf of the 
schools, the appropriation of money will be more vigi- 
lantly guarded, and the teachers will more probably be 
appointed on account of their skill and ability. The 
appointment of so many teachers could rarely be effected 
by a central government, with either skill or fidelity. 
And the community, having no interest either in the se- 
lection or the remuneration of the teacher, would rarely 
take that interest in the subject of education, which the 
good of the pupils requires. 

On this subject, the principles to be kept in view seem 
to be simple. It seems necessary, that every district 
sufficiently large to maintain a school, should Le obliged 
to maintain one, and that, for this purpose, the necessary 
funds be raised by the authority of the public. When, 
however, these funds have been raised, they may safely 
be left in the power of each district itself, in the belief, 
that those who have themselves earned and contributed 
the money, will be more likely than any other persons, 
to disburse it skilfully and economically. Besides this, 
as upon such a system, teachers will be wanted in large 
numbers, it may be desirable that seminaries be estab- 
lished for the special purpose of educating thern. This 
will give uniformity to the system of instruction, and 
enable the science of education, throughout a whole 
community, the more easily to keep pace with the pro- 
gress of science, in other departments of knowledge. 

2. Of scientific education. 

That the cultivation and the diffusion of science is 
greatly advantageous to a whole community, does not, I 
trust, require proof. Nations are, at present, princi- 
pally enriched by the result of discovery and inveniion ; 
and in consequence of the general diffusion of knowledge 
and intelligence. That a portion of the national revenue 



EXPENSES FOR EDUCATION. 401 

should be directed to the promotion of these objects, 
seems both equitable and wise. 

As both the cultivation and the diffusion of science 
may be performed by the same individuals, and, as the 
same instruments are needful for both purposes, these 
two objects have been commonly united. The design 
of an establishment for scientific education is two fold. 
1st. To diffuse abroad the knowledge already existing, 
and 2dly, to add to the amount of knowledge that now 
actually exists. Seminaries of learning have rarely been 
successful in accomplishing either one of these objects, 
when they were not also successful in accomplishing the 
other. The only question to be considered here, is 
this ; in what manner, at the least expense, may a gov- 
ernment promote the cultivation and diffusion of science, 
by means of seminaries of higher education. 

1. I have remarked, when treating of production, that 
the instruments, the books, and the buildings necessary 
for the accomplishment of these objects, are very ex- 
pensive, and can rarely be possessed by individuals. 
Or, if they were possessed by individuals, the cost of 
the investment would render education so expensive, as 
to restrict it entirely to the rich. Hence, we see that 
public provision for scientific education, instead of ben- 
efiting the wealthy, is, specially, a benefit to the poor. 
The furnishing of these means, is the most important 
duty of a government, in so far as scientific education is 
concerned. 

2. Whether teachers should pay for the use of such 
means, may be easily decided. If they pay for such 
use, they must charge a proportionally higher price for 
tuition. If they have the use for nothing, their charges 
for tuition will fall in proportion. 

3. The emolument of the teacher should be made to 
depend upon his professional skill and ability. In no 
other manner will the necessary stimulants be presented 
to professional industry ; and in no other way will it be 
rendered impossible for a man to support himself in this 
profession, without performing its duties with skill and 
fidelity. I have no doubt that the mode, in this coun- 

34* 



402 EXPENSES FOR EDUCATION. 

try, of remunerating all college officers by a fixed salary 
is exceedingly unfavorable to the progress of education 
If, for the sake of promoting the study of a particular 
science, funds be provided for the partial support of an 
instructor, they should always be so managed, as not in 
any manner to conflict with the principle here advanced. 
4. If, in addition to this, funds be provided for the 
education of a certain number of those who are indigent, 
I think this should be done upon the following prin- 
ciples : — 

1. The provision should be so made, as to benefit 
merely the indigent, and not reduce the price of tuition 
to the whole. If tuition be so expensive that A cannot 
procure it, and it be desirable to educate him, it may be 
well to make provision for him. But this is no reason 
why the price of tuition should be reduced, in an equal 
degree, for B, C, D, and the rest of the community, 
who are able to pay for it at its natural cost. 

2. The provision should be so made as not to inter- 
fere with the principle above advanced, that teachers be 
rewarded according to their skill and fidelity. If it be 
so made that a college, on account of its cheapness, will 
always be full, and its officers be paid, whether they 
perform their duties or not, it will retard, instead of 
promoting, the cause of education. 

3. It might be of advantage, supposing a series of 
schools were established, if gratuitous admission to the 
higher seminaries were the reward of talent, diligence, 
and good conduct in the lower. This would be a strong 
stimulant to effort in the lower schools, and would be 
more likely than any other mode, to limit the bounty of 
the public to those who are the most deserving of it. 

It may not be amiss here to add, that the success of 
public efforts for the purpose of promoting scientific 
education, will depend very greatly upon the mode in 
which those efforts are exerted. If they be directed to 
the single object of reducing the cost of education, 
nothing but this object will be effected. Pupils will pay 
the smallest possible sum for tuition, and the instructors 
will receive the smallest possible remuneration for their 



RELIGIOUS ESTABLISHMENTS. 403 

services, and their services will be of the smallest possi 
ble value. A man would be considered very simple, 
who flattered himself that he could purchase twenty-five 
dollars' worth of broadcloth, or flour, or coffee, for five 
dollars. Let him please himself with his own fancies as 
he may, it will be found in the end, that for five dollars, 
he has received no more than five dollars' worth. The 
case is the same with education. Men may have teach- 
ers worth five hundred, or one thousand, or two thousand, 
or three thousand dollars per annum. But they will 
greatly mistake, if they suppose, that, by any process yet 
discovered, services worth three thousand dollars can be 
procured for five hundred dollars. 

By merely reducing the cost, education will decrease 
in quality as it increases in quantity. As the article is 
found to be less valuable, it will, in the end, be less in 
demand ; and thus, at last, not merely will the quality 
have deteriorated, but the quantity produced will also 
have diminished. 

On the other hand, if the efforts of the public be di- 
rected to improvement of education, the increased value 
of an education will induce a greater number to avail 
themselves of its advantages. The literary taste of the 
community will be elevated ; the demand for education 
will increase, and thus, not only will the quality of the 
product be improved, but the amount disposed of will 
be greatly augmented. If these views be correct, it 
will follow, that the efforts in behalf of a collegiate edu- 
cation in this country, have not always been wisely di- 
rected, and that, if much that has been done to render 
education cheap, had been done to render education 
good, it would have been far better for the cause of 
science, and of professional learning among us. 

III. Of expenses for maintaining religious worship. 

These expenses need to. be borne by men in some 
manner associated together. It, however, by no means 
follows, that they are to be borne by men as members 
of civil society. It cannot be proved that the Christian 
religion needs the support of civil government, since it 
has existed and flourished when entirely deprived of this 



404 OF NATIONAL IMPROVEMENT. 

support. And, if it be said, that every man derives 
benefit from religious services, inasmuch as these ser- 
vices improve the moral and intellectual character of his 
neighbors ; and hence, that every man ought to pay for 
their maintenance ;' the argument may be easily met as 
follows. It is granted, that every man is benefited by 
the regular administration of the ordinances of religion, 
but this is not the reason for which these ordinances are 
established. Men unite with their neighbors to procure 
religious instruction, for their own benefit, and not for 
the benefit of others. If it happen, accidentally, that 
others are benefited, it does not follow that they are 
obliged to pay for this benefit. If my neighbor erect a 
building for his own profit, on his own land, and thus 
improve my property, I am not obliged to unite in de- 
fraying the expenses of his building. I am entitled gra- 
tuitously to this accidental advantage. I think the same 
principle applies to the case in question. 

The only ground on which the support of religion by 
public taxation, can be defended, is, that its existence is 
necessary to the support of civil government, and that it 
can be sustained in no other manner than by compulsion. 
The first assertion we grant to be true. The second, 
we utterly deny. Hence, we do not believe that any 
taxation for this purpose is necessary. All that religious 
societies have a right to ask of the civil government, is, 
the same privileges for transacting their own affairs, 
which societies of every other sort possess. This, they 
have a right to demand, not because they are religious 
societies, but, because the exercise of religion is an in- 
nocent mode of pursuing happiness. If these be not 
granted, religious men are oppressed, and the country 
where such oppression prevails, let it call itself what it 
may, is not in this matter free. 

IV. Of national improvement. 

Another purpose, for which the public funds are fre- 
quently expended, is national improvement. The prin- 
ciples which seem to apply to this case, have been al- 
ready stated. They are briefly these. Improvements 
of coasts, and harbors, and all that is necessary for the 



OP THE EXPENSES OF PAUPERISM. 405 

security of external commerce, must be done by the 
public. Internal improvements, such as roads, canals, 
railroads, &c, may, in general, be safely left to individ- 
ual enterprise. If they would be a profitable investment 
of capital, individuals would be willing to undertake 
them. If they would be an unprofitable investment, 
both parties had better let them alone. The only case 
in which a government should assume such works, is 
that in which their magnitude is too great for individual 
enterprise, or that in which the power which they con- 
fer, is too great to be entrusted to private corporations. 
Whenever they are undertaken, the principles on which 
the expenditure should be made, are the same as those 
which govern the expenditure of individuals. 

V. Of the expenses of pauperism. 

To relieve the sick, the destitute, and the helpless, is 
a religious duty, and therefore should, like every other 
religious duty, be a voluntary service. Hence, charily 
in a moral and religious community, should generally be 
dispensed by individuals from their own resources, or 
from the resources of voluntary associations. 

Nevertheless, as cases frequently occur which could 
not, with sufficient promptness, be relieved by the aid 
of individuals, or in which the burden would press too 
heavily on the most charitable, it may be proper that 
some public provision should be made for the relief of 
those whom old age, or infancy, or sickness, has de- 
prived of the power of providing the means necessary 
for sustenance. 

By far the greater number of persons requiring such 
aid, are, however, capable of some labor, and are also 
possessed of some skill. They are also far happier, 
when engaged in suitable labor, than when idle. It is, 
therefore, the dictate of benevolence, as well as of econ- 
omy, to provide them with means of profitable occu- 
pation. This labor and skill, if judiciously employed 
upon capital, will commonly defray the expenses of the 
support of paupers. Hence, the best method of reliev- 
ing the poor, is to provide some establishment furnished 
with sufficient capital, in which, all the poor who need 



406 OF WAR. 

assistance, may be employed and supported. In many 
cases in New England and New Yoik, farms have been 
purchased by towns or by counties, for this purpose. 
It has generally been found, that the only expense ne- 
cessary to be incurred, is the purchase of the farm, or 
the first investment of the capital. The establishment, 
after this, under judicious management, has generally 
paid its own expenses, and, in some cases, as I have 
been informed, has even yielded a revenue to the public. 
The expenses of pauperism, if they be defrayed in this 
manner, must, of necessity, be very moderate ; while a 
competent and convenient provision may be made, for 
every individual who actually deserves assistance. 

VI. Of War. 

The cheapest defence of nations, I suppose to be the 
exercise of justice and benevolence. If, however, a 
nation resolve upon the employment of military force, 
economy would direct that both its plans and means of 
defence, should be extensive, scientific, and complete. 
Its territory and its coasts should be accurately sur- 
veyed with reference to this object. Its assailable posi- 
tions should all be strongly fortified. Munitions of war 
should be provided in abundance. Schools for instruc- 
tion in the art of war, should be supported at the public 
expense, and the persons so educated should be main- 
tained, either in whole or in part, at the public expense, 
so that their services may be commanded, whenever 
they may be required. In this, as in every other case, 
economy teaches us, that if a given object is to be ef- 
fected, no expense is unreasonable, which is necessary 
to effect it in the most perfect manner. The manner 
of expenditure is to be learned from the teachers of mil- 
itary science. Economy, therefore, directs that the 
most valuable talent should be employed, at whatever 
expense, for providing the plans of defence, that these 
plans should be fully and perfectly carried into effect, 
and that all should be done at no greater cost than is 
necessary to the accomplishment of the object. 

THE END. 



VALUABLE WORKS 

PUBLISHED AND FOR SALE BT 

GOULD, KENDALL AND LINCOLN, 

59 WASHINGTON STREET, 
BOSTON. 



First Volume of Scientific Tlieology. 

THE PRE-ADAMITE EARTH. 

CONTRIBUTIONS TO THEOLOGICAL SCIENCE. 
BY JOHN HARRIS, D. D. 

JDTHOB 07 "IIMMOII," "THE 0.HE1T TBlCHSIl," "THE OREiT COMMISilOS," ETC. 

Price, 85 Cents. 
This volume is the first of a series projected by the author, to appeal 

at intervals, each volume complete in itself. 

KF= By special arrangement with The Author, (who u-ill 

participate in the profits of the edition,) the American publishers 

will be supplied with the early sheets of the future volumes of this 

work, and issue it simultaneously with the London Edition. 

OPINIONS OF THE PRESS. 

From the Christian Mirror, Portland. 

It seems to us a very successful specimen of the synthetical mode of 
reasoning. It puts the mind on a new track, and is well fitted to awaken 
its energies and expand its views. We have never seen the natural sciences, 
particularly Geology, made to give so decided and unimpeachable a testimony 
to revealed truth. He appears to allow it all that it can justly claim, all 
indeed that its advocates can fairly claim for it, while the integrity and truth 
of the Scriptures are maintained inviolate. And the wonders of God's 
works, which he has here grouped together, convey a most magnificent and 
even overpowering idea of the Great Creator. We wish that we could 
devote a week, uninterruptedly, to its perusal and re-perusal. 

From, the Philadelphia Christian Observn. 
This is a work to be studied — in which profound principles are presented 
and discussed in relations which will awaken the energies and enlarge the 
views of disciplined minds. It is a book for thinking men. It opens new 
trains of thought to the reader' — puts him in a new position to survey the 
■wonders of God : s work ; and compels Natural Science to bear her decided 
testimony in support of divine truth. 

Froyn the "KeiD York Erangelist. 
In applying his principles, Dr. Harris states, in a lucid, succinct, and often 
highly eloquent manner, all the leading facts of geology and their beautiful 
harmony with the teachings of Scripture. As a work of paleontology, in 
its relation to scripture, it will be one of the most complete and popular 
extant. It evinces great research, clear and rigid reasoning, and a style 
more condensed and beautiful than is usually found in a work so profound 
It will be an invaluable contribution to Biblical Science. 



MEMOIR OF 

MRS. HENRIETTA SHUCK. 

FIRST FEMALE MISSIONARY TO CHINA. 
BY RET. J. B. JETER. 

Price 50 Cents. 

From the Family Visitor, Boston. 
" We have seldom taken into our hands a more beautiful book than this, 
and we hare no small pleasure in knowing the degree of perfection attained 
in this country in the arts of printing and book-binding, as seen in its ap- 
pearance. The style of the author is sedate and perspicuous, such as we 
might expect from his known piety and learning, his attachment to missions 
and the amiable lady whose memory he embalms. The book will be exten- 
sively read and eminently useful, and thus the ends sought by the author 
will be happily secured. We think we are not mistaken in this opinion ; 
for those who taste the effect of early education upon the expansion of re- 
generated convictions of duty and happiness, who are charmed with youth- 
ful, heroic self-consecration upon the altar of God, for the welfare of man, 
and who are interested in those struggles of mind which lead men to shut 
their eyes and ears to the importunate pleadings of filial affection — those 
who are interested in China, that large opening field for the glorious con- 
quests of divine truth, who are interested in the government and habits, 
social and business like, of the people of this empire — all such will be 
interested in this Memoir. To them and to the friends of missions generally, 
the book is commended, as worthy of an attentive perusal." 

THE MISSIONARY ENTERPRISE; 

A COLLECTION OF 

DISCOURSES ON CHRISTIAN MISSIONS, 

BY AMERICAN AUTHORS. 
EDITED BY BARON STOW, D.D. 

SECOND THOUSAND. PRICE 85 CENTS. 

From the New F-nglander. 

" If we desired to put into the hands of a foreigner a fair exhibition of the 
capacity and spirit of the American church, we would give him this volume. 
You have here thrown together a few discourses, preached from time to 
time, by different individuals, of different denominations, as circumstances 
have demanded them ; and you see the stature and feel the pulse of the 
American Church in these discourses, with a certainty not to be mistaken. 

You see the high talent of the American church. We venture the asser- 
tion that no nation in the world has such an amount of forceful, available 
talent in its pulpit. The energy, directness, scope, ami intellectual spirit of 
the American church is wonderful. In this book, the discourses by Dr. 
Beecher, Bres. Wayland, and the Rev. Dr. Stone of the Episcopal church, 
are among the very highest exhibitions of logical correctness, and burning, 
popular fervor. This volume will have a wide circulation. 

From the Carolina Baptist. 
This work contains fifteen sermons on Missions, by Rev. Drs. Wayland, 
Griffin, Anderson, Williams, Beecher, Miller, Fuller, Beman, Stone, Mason, 
and by ltev. Messrs. Kirk, Stow, Ide. It is a rich treasure, which ought 
to be in the possession of every American Christian. 



CRUDEN'S CONDENSED CONCORDANCE. 

A COMPLETE 

CONCORDANCE TO THE HOLY SCRIPTURES. 

BY ALEXANDER CRUDEN, M.A. 

A NEW AND CONDENSED EDITION, WITH AN INTRODUCTION, 

BY REV. DAVID KING, LL.D. 

Fifth Thousand. Price, in Boards, $1,25 ; Sheep, $1,50. 

This edition is printed from English plates, and is a full and fair copy of all 

that is valuable in Cruden as a Concordance. The principal variation trom the 

larger book consists in the exclusion of the Bible Dictionary, which has long been 

an incumbrance, and the accuracy and value of which have been depreciated by 

works of later date, containing recent discoveries, facts and opinions, unknown 

to Cruden. The condensation of the quotations of Scriptures, arranged under 

their most obvious heads, while it diminishes the bulk of the work, greatly 

facilitates the finding of any required passage. 

OPINIONS OF THE PRESS. 

From the Boston Recorder. 
Those who have been acquainted with the various works of this kind* now 
in use well know that Cruden's Concordance far excels all others. Yet we 
have in this edition of Cruden, the best made better. That is, the present 
is better adapted to the purposes of a Concordance, by the erasure oi super- 
fluous references, the omissiou of unnecessary explanations, and the con- 
traction of quotations, &c. ; it is better as a manual, and is better adapted 
by its price to the means of many who need and ought to possess such a 
work, than the former larger and expensive edition. 

From the Christian Mirror, Portland. 
The condensation effected on this edition, leaves the book even more 
perspicuous, and a readier help than before. 

From the Albany Argits. 
The present edition, in being relieved of some things which contributed to 
render aU former ones unnecessarily cumbrous, without adding to the 
substantial value of the work, becomes an exceedingly cheap book. 
From the Albany Religious Spectator. 
The work has lost nothing of its value from being condensed, as we find 
it, in the present edition. 

From the Christian Reflector, Boston. 
We cannot see but it is, in all points, as valuable a book, of reference, for 
ministers and Bible students, as the larger edition. 

From the Christian Watchman, Boston. 
AU in the incomparable work of Cruden, that is essential to a concordance, 
is presented in a volume much reduced both in size and price. 
From the Baptist Record, Philadelphia. 
The new, condensed and cheap work prepared from the voluminous and 
costly one of Cruden, opportunely fills a chasm in our Biblical literature. 
The work has been examined critically by several ministers, and others, 
and pronounced complete and accurate. 

From the Advent Herald, Boston. 
This is the very work of which we have long felt the need. We obtained 
a copy of the English edition some months since, and wished some one 
would publish it ; and we are much pleased that its enterprising publishers 
can now fnrnish the student of the Bible with a work which he so much 
needs, at so cheap a rate. 



THE PSALMIST: 
31 3f«D Collection of juntas, 

FOR THE USE OF THE BAPTIST CHURCHES. 
BY BARON STOW AND S. F. SMTH. 

ASSISTED BY 

William R. Williams, New York; George B. Ide, Rufus W. Gkiswold, 

Pennsylvania; Stephen P. Hill, Marjiand; James B. Taylor, 

Virginia; John L. Daog, Alabama; William T. Brantly, 

South Carolina; R. B. C. Howell, Tennessee ; 

Samuel W. Lynd, Ohio. 

\CF~ The publishers ivould inform all interested, that t/ds work has become 
THE book oftlie Baptist denomination, iiaving been introduced into every 
Utate in the Union and the British province. Within eighteen ?nonths 
from its first publication, over fifty thousand copies were issued. 
As a coUtction of hymns it stands unrivalled. 

The following notice, from the Miami Association, of Ohio, is but a speci- 
men of a host of others, received by tlie publishers. 

The Committee appointed to report upon a hymn book, have attended 
to the duty assigned them, and report the following as their views. For 
several reasons, the Committee recommend to the attention of the church- 
es the new work, called ' The Psalmist,' as worthy of special patronage. 

1. It is exceedingly desirable, that our whole denominalion should use. 
in the praises of the sanctuary, the same psalms, hymns, and spiritual 
songs. To secure uniformity, we prefer ' The Psalmist,' because it is 
strictly, and from the foundation, designed for the use of Baptist church- 
es, — is not surpassed by any hymn book in the world, — and the propri- 
etorship is wholly Baptist, by which the greatest facilities can be furnished 
for its introduction to the churches, and the perpetuity of its publication. 

2. It has been prepared with the greatest care. In no instance has a 
hymn book gone through so thorough a revision ; and the influence which 
is rationally exerted in its favor by the committee of revision, — by the 
known qualification of the editors, by the popularity of the Boston pub- 
lishers, and by the fact that it is connected with the series of the Am. 
Bap. Pub. Society, — will necessarily give it an ultimate circulation 
greater than that of any other similar work in the churches. 3. It is a 
book of very superior merits, and probably will not need any important 
emendation for a long period to come. The Committee, therefore, rec- 
ommend to the churches the adoption of this work, as well calculated lo 
elevate the taste and the devotion of the denomination. 

All of which is respectfully submitted, 

S. W. Lynd, Chairman. 



COMPANION FOR THE PSALMIST. 

CONTAINING ORIGINAL MUSIC. 

Arranged for hymns in ' The Psalmist,' of peculiar character and metre. 

BY N. D. GOULD. 

This work is designed, and the music has been written, expressly to 
meet the wants of those who use ' The Psalmist.' It is adapted to the 
numerous beautiful hymns of peculiar metre, which are embraced in that 
collection, few of which are lo be found in oilier hymn books, and to none 
of which have any tunes been hitherto adapted. They are simple, and 
suitable for either private, social, or public devotion. 
2 



SECOND EDITION. 

Apostolical and Primitive Church; 

POPULAR IN ITS GOVERNMENT AND SIMPLE IN ITS WORSHIP. 

BY LYMAN COLEMAN. 

With an Introductory Essay, by Dr. Augustus Ntander, of Berlin, 

Tlie Publishers have been favored with many highly commendatory notices 
of this work, from individuals and public journals. The first edition found 
a rapid sale : it lias been republished in England, and received with much 
favor: it is universally pronounced to be standard authority on this sub- 
ject; and is adopted as a Text Book in Tlitological Seminaries. 

From the Professors in Andover Theol. Seminary. 
The undersigned are pleased to hear that you are soon to publish a 
new edition of the ' Primitive Church,' by Lyman Coleman. They re- 
gard this volume as the result of extensive and original research ; as 
embodying very important materials for reference, much sound thought 
and conclusive argument. In their estimation, it may both interest and 
instruct the intelligent lavman, may be profitably used as a text-book 
for theological students, and should especially form a part of the libraries 
of clergymen. The Introduction, by Neander, is of itself sufficient to 
recommend the volume to the literary public. 

Leonard Woods, Bela B. Edwards, 
Ralph Emerson, Edwards A. Park. 

From the Professors in Auburn Theol. Seminary. 
The work of the Rev. Lyman Coleman, on ' The Apostolical and 
Primitive Church,' we regard as a faithful exhibition of testimonies on 
the primary organization and government of the Christian church, and 
on the progress of subsequent changes ; and although in our inferences 
in favor of a popular government, we might incline more than the author 
to a representative instead of a Dure democracy, we cannot but welcome 
the publication as seasonable, and as furnishing a desirable means of 
correct information on the subject which has been too much neglected in 
the training of theological students, of ministers, and of people in the 
Congregational and Presbyterian churches. 

Henry Mills, 

Prof. Biblical Criticism. 
Baxter Dickinson, 
Prof. Sacred Rlietoric and Pastoral Theology. 

From the Professors in Yale College. 
The undersigned consider the Rev. L. Coleman's work on the Apos- 
tolical and Primitive Church, as being, in general, correct in sentiment, 
judicious in the exposition of the Scriptures, and both copious and fair 
in citations from the early ecclesiastical writers. As a book of reference 
it possesses great value ; and. we think, it might be used advantageously 
as a text-book in lectures to theological students. 

James Murdock, Ciiacncey A. Goodrich. 

Naxh'l W. Taylor, James L. Kingsley. 
Leonard Bacon. 

From John Harris, D. D., Author of ' Mammon,' etc. 
I need not say that the perusal of your work has very highly gratified 
me, as it must have done numbers besides. Its well digested and rightly 
applied learning, catholic spirit, and comprehensive plan, cannot fail to 
place it among standard works in its particular department, and to ren- 
der it subservient to the final triumph of scriptural Christianity. I shall 
certainly make it a class book on the subject on which it treats. 

Yours, respectfully, John Harris. 

3 



THE CHRISTIAN'S DAILY TREASURY. 

A Religious Exercise for every Day in the Year. 

By EBENEZER TEMPLE. 

Price 1,00. 

This vjork is strictly evangelical, and presents with great distinct- 
ness the peculiar points of orthodoxy. The texts are /mppily chosen, 
and all the thoughts suggested by the author are interesting and 
profitable. The skeletons are generally of the textual character, 
very neat, comprehensive, and each of them, contains matter 
enough for a sermon. There is a great variety of beautiful gems 
scattered through it, both original and selected. 

NOTICES OF THE PRESS. 
From the Christian Chronicle, Philadelphia. 

This work might appropriately he called a guide to meditation. It con- 
sists of a subject for every day in the year, drawn from an appropriate 
portion of Scripture, with reflections upon it. It does not attempt to ex- 
haust the daily subjects, but merely to direct the reader's thoughts. The 
plan strikes us as a very happy one. Many do not know how to meditate. 
A careful use of this volume, for a year, will do verj' much to form habits 
of profitable meditation on Scripture. As habits of meditation are so 
intimately connected with Christian progress and enjoyment, we think the 
influence of such a work as is here presented, must be very happy. 
From the New York Commercial Advertiser. 

One of the best books of the kind we have recently met with. The daily 
reflections, instead of being general and diffuse, are thrown into the sermonic 
form, and thus the instruction is made more impressive and easy of retention. 

THE CHURCH MEMBER'S MANUAL 

Of Ecclesiastical Principles, Doctrines, and Discipline ; presenting a Sys- 
tematic View of the Structure, Polity, Doctrines, and Practices of Christian 
Churches, as taught in the Scriptures ; by William Crowell. With an 
Introductory Essay, by Henry J. Kipley, D. D. Price 90 cents. 

The pastor of one of the largest and most influential churches in New 
England, writes as follows : 

" The work is admirably adapted to the wants of pastors and private mem- 
bers. If I could have my wish, not only the ministers, but the deacons and 
senior members of our churches would own and read the book." 

Another writes — "I have read this work with great pleasure. For a long 
time such a guide has been needed, and much detriment to the church 
would have been avoided, had it made its appearance sooner. 

THE CHURCH MEMBER'S GUIDE, 

By Rev. J. A. James. Edited by Rev. J. 0. Choules. 

New Edition ; with an Introductory Essay, by Rev. Hubbard Winslow. 

Price 38 Cents. 

A pastor writes, " I sincerely wish that every professor of religion in the 
land may possess this excellent manual. I am anxious that every member 
of my church should possess it, and shall be happy to promote its circula- 
tion still more extensively." 

" The spontaneous effusion of our heart, on laying the book down, was, 
— may every church-member in our land soon possess this book, and be 
blessed with all the happiness which conformity to its evangelic sentiments 
and directions is calculated to confer." — Christian Secretary. 



BIN. HAEVEY EEWCOMB'S WOBKS. 
HOW TO BE A LADY; 

A BOOK FOR GIRLS, CONTAINING USEFUL HINTS ON THE 

FORMATION OF CHARACTER. 

Price 50 Cents. 

" Having daughters of his own, and having been many years employed in 

writing for the young, he hopes to be able to offer some good advice, in the 

following pages, in an entertaining wav, for girls or misses, between the ages 

of eight and fifteen. His object is, to assist them in forming their characters 

upon the best model ; that they may become well-bred, intelligent, refined, 

and good ; and then they will be real ladies, in the highest sense." — Prejacc. 

HOW TO BE A MAN; 

A BOOK FOR BOYS, CONTAINING USEFUL HINTS ON THE 
FORMATION OF CHARACTER. 
Price 50 Cents. 
"My design in writing has been to contribute something toward forming 
the character of those who are to be our future electors, legislators, governors, 
judges, ministers, lawyers and physicians, — after the best model; and, 
from the kind reception of my former attempts to benefit American youth, 
I trust they will give a candid hearing to the hints contained in the follow- 
in" pa°-es. It is intended for boys — or, if you please, for young gentlemen, 
inearly youth, from eight or ten to fifteen or sixteen years of age."— Preface. 

NOTICES OF THE PRESS. 
From the American Pulpit. 
Two delightful volumes, by the Rev. Harvey Newcomb. These are written 
by an intelli"ent christian father. They contain wise and important coun- 
sels and cautions, adapted to the young, and made entertaining by the 
interesting style and illustrations by the author. They are fine mirrors, in 
•which are reflected the prominent lineaments of the christian young gentle- 
man and young lady. The execution of the works is of the first order, and 
the books wiU afford elegant and most profitable presents for the young. 

From the Albany Argus. 
TVe notice these two books together, not merely because they are by the 
same author, and contemplate the same general end, but because they 
are, to some extent, identical. They are both full of wholesome and 
judicious counsels, which are well fitted to preserve the young from the 
numberless evils to which they are exposed, and to mould them to virtue 
and usefulness. The style is simple and perspicuous ; and there is a di- 
rectness and earnestness pervading the whole, which, one would suppose, 
must secure for it a ready access to the you thful mind and heart. 

Just Published by the same Author, 

ANECDOTES FOR BOYS; 

entertaining anecdotes and narratives, illustrative of principles 
and character. 



ANECDOTES FOR GIRLS; 

ENTERTAINING ANECDOTES AND NARRATIVES, ILLUSTRATIVE OP PRINCIPLES 
AND CHARACTER. 



LIFE OF 

GODFREY WILLIAM VON LIEBN1TZ. 

ON THE BASIS OF THK GERMAN WORK OF DR. G. E. 6tlIRAUER. 

BY JOHN M. MACKIE. 

This work will lie sought for and eagerly read by the scientific and 
curious. — If. Y. Observer. 

Exceedingly interesting and instructive. — Pruv. Tianscrij/t. 

The peculiar relation which Liebn.itz sustained during his life to Locke 
and Newton, may partly account lor the laci that a biography of this great 
man has been so long wanting in the English language. . . . We 
commend this book, not only to scholars and men of science, but to all 
our readers who love to contemplate the life and labors of a great and 
good man. It merits the special notice of all who are interested in the 
business of education, and deserves a place by the side of Brewster's 
Life of Newton, in all the libraries of our schools, academies, and litera- 
ry institutions. — Christian Watchman. 

It ought to be read, not only by the man of science, hut also by the 
general scholar, whaiever may be his pamcular profession. 

N. Y. Baptist Adtocaie. 

There is perhaps no case on record of a single man who has so gone 
the rounds of human knowledge as did Liebnitz : he was not a recluse, 
like Spinoza and Kant, but went from capital to capital, and associated 
with kings and premiers. All branches of thought were interesting to 
him, and he seems in pursuing all to have been actuated not by ambi- 
tion, but by a sincere desire to promote the knowledge and welfare of 
mankind. — Christian World. 



GERMAN PHILOLOGISTS. 

CLASSICAL STUDIES : Essays on Ancient Literature and Art. 
With the Biography and Correspondence of eminent Philologists. By 
Barnas Sears, President Newton Theological Institution. B. B. 
Edwards, Professor Andover Theological Seminary, and C. C. Fel- 
ton, Professor Harvard University. 

From the Ntw England Puritan. 
This volume is no common-place production. It is truly refreshing, 
when we are obliged, from week to week to look through the mass of 
books which increases upon our table, many of which are extremely 
attenuated in thought and jejune in style, to find something which carries 
us back to the pure and invigorating influence of the master minds cf 
antiquity. The gentlemen who have produced this volume deserve the 
cordial thanks of ihe literary world. 

From the Providence Journal. 
The object of the accomplished gentlemen who have engaged in its 
preparation has been, to foster and extend among educated men, in ihis 
country, the already growing interest in classical studies. The design 
is a noble and generous one, and has been executed wilh a taste and 
good sense that do honor both to Ihe writers and the publishers. The 
book is one which deserves a place in the library of every educated man. 
To those now engaged in classical study it cannot fail to be highly use- 
ful, while to the more advanced scholar, it will open new sources of 
interest and delight in the unforgotlen pursuits of his earlier days. 
5 



THE EXTENT OF THE ATONEMENT, 

IN ITS RELATION TO GOD AND THE UNIVERSE. 

By THOMAS W. JENKYN, D.D. 

Price, 85 Cents. 

" This is a reprint of a standard English work on the extent of the Atone- 
ment in its relation to God and the Universe. We have examined this work 
with profound interest, and become deeply impressed with its value. Its 
style is lucid, its analysis perfect, its spirit and tendencies eminently evan- 
gelical We have nowhere else seen the atonement so clearly denned, or 
vindicated on grounds so appreciable. We commend it to our readers as a 
theological work of rare value." — New York Recorder. 

" As a treatise on the grand relation of the Atonement, it is a book which 
may be emphatically said to contain the ' seeds of things,' the elements of 
mightier and nobler contributions of thought respecting the sacrifice of 
Christ, than any modern production. It is characterized by highly original 
and dense trains of thought, which make the reader feel that he is holding 
communion with a mind that can ' mingle with the universe.' We 
consider this volume as setting the long and fiercely agitated question, 
as to the extent of the Atonement, completely at rest. Posterity will thank 
the author till the latest ages, for his illustrious arguments." 

New York Evangelist. 

THE UNION OF 
THE HOLY SPIRIT AND THE CHURCH, 

IN THE CONVERSION OF THE WORLD. 
Br TIIOMAS W. JENKYN, D.D. 

Price 85 Cents. 

" The -discussion is eminently scriptural, placing its grand theme, the 
union of the Holy Spirit and the church in the conversion of the world, in 
a very clear and affecting light. There is no subject in theology, no depart- 
ment in practical religion, in which the great body of Christian professors 
at the present day, we may add ministers of the Gospel, more need instruc- 
tion than in respect to the agency and influences of the Holy Spirit, in the 
conversion of men, and the sanctification of believers." • — Chr. Watchman. 

" A very excellent work upon a very important subject. The author 
seems to have studied it in all its bearings, as presented to his contemplation 
in the sacred volume." — London Evangelical Magazine. 

" Fine talent, sound learning, and scriptural piety pervade every page. 
It is impossible the volume can remain unread, or that it can be read 
without producing great effects. Mr. Jenkyn deserves the thanks of the 
whole body of Christians for a book which will greatly benefit the world 
and the church." — London Revivalist. 

ANTIOCH; 

Or, Increase of Moral Power in the Church of Christ. 
Br Rev. P. Church. Introductory Essay, by Rev. B. Stow. 50c. 

" Here is a volume which will make a greater stir than any didactic work 
that has been issued for many a day. It is a book of close and consecutive 
thought, and treats of subjects which are of the deepest interest, at the present 
time, to the churches of this country. The author is favorably known to the 
religious public, as an original thinker, and a forcible writer. — His style 
is lucid and vigorous. The Introduction, by Mr. Stow, adds much to the 
value and attractions of the volume." — Christian Reflector. 



LIFE OF ROGER WILLIAMS, 

THE FOUNDER OF THE STATE OF RHODE ISLAND. 
By WILLIAM GAMMELL, 

Professor of Rhetoric in Brown University. Price 75 cents. 

" Mr. GammelPs fine belles-lettres attainments have enabled him to 
present his distinguished subject in the most captivating light. So far as the 
work touches controversies which reach and influence the present times, it 
is our privilege as well as duty to read it as a private citizen, and not as a 
public journalist. Its mechanical execution is in the usually neat style of 
the respectable publishers.'' — Christian Alliance, Boston. 

"This life has many virtues — brevity, simplicity, fairness. Though 
written by a Rhode Island man, and warm in its approval of Roger Williams, 
it is not unjust to his Puritan opponents, but only draws such deductions as 
were unavoidable from the premises. It is the life of a good man, and we 
read with grateful complacency the commendation of his excellences." 

C/uistian World. 

MY PROGRESS IN ERROR 



RECOVERY TO TRUTH; 

OR, A TOUR THROUGH UNIVERSALIS!!, UXITARIAJSTSM, 

and skepticism. Price 63 cents. 

" The author has written a plain and unvarnished account of the opera- 
tions not Only of his mind, but of many others. This book will be read, and 
if I do not miscalculate greatly, it will aid much in opening the eyes of the 
public as the workings and evasions of a skeptical spirit." — Letter from Prof. 
Stewart, Andocer. 

" It is written in a bold and comprehensive style. We doubt not it will 
find numerous readers in the communit3', and may serve as a chart to guide 
others in the progress of life. " — American Traveller. 

" We should be glad if a copy of the book could be put into the hands of 
every one who is disposed to cavil at the truth, and embrace error. 

Baptist Recorder. 



THE IMITATION OF CHRIST, 

By Thomas A Kejipis. With an Introductory Essay, by T. Chalmers, 
D. D. A new and improved edition. Edited by H. Malcom, D. D. 38 e. 

" This work has for three hundred years, been esteemed one of the best 
practical books in existence, and has gone through a vast number of editions, 
not only in the original Latin, but in every language of Europe. Dr. Pay- 
son, of Portland, warmly recommended it in a letter to a young clergyman. 
That the benefit of the work may be universally enjoyed, the translation of 
Payne, which best agrees with the original, has been revised by Rev. 
Howard Malcom, and such retrenchments made, as adapt it to general use." 



CHAMBERS'S MISCELLANY 

OF USEFUL AND ENTERTAINING KNOWLEDGE. 

Edited by Robert Chambers, Author of" Cyclopaedia ofEng. Literature." 

With Elegant Illustrative Engravings. Price, 25 cts. per No. 



Gould, Kendall & Lincoln are happy to announce that they have 
completed arrangements with the Messrs. Chambers, of Edinburgh, for the 
re-publication, in semi-monthly numbers, of Chambers's Miscellany. 
The first number will be issued in July, and continued at regular intervals 
until the work is completed. 

The design of the Miscellany is to supply the increasing demand for 
useful, instructive, and entertaining reading, and to bring all the aids of 
literature to bear on the cultivation of the feelings and understandings of 
tlie people — to impress correct views on important moral and social ques- 
tions — suppress every species of strife and savagery — cheer the lagging 
and desponding, by the relation of tales drawn from the imagination of 
popular writers — rouse the fancy, by descriptions of interesting foreign 
scenes — give a zest to every-day occupations, by ballad and lyrical po- 
etry — in short, to furnish an unobtrusive friend and guide, a lively fireside 
companion, as far as that object can be attained through the instrumentality 
of books. 

The universally acknowledged merits of the Cyclopaedia of English 
Literature, by the same author, connected with its rapid sale, and the 
unbounded commendation bestowed ':>y the press, give the publishers full 
confidence in the real value and entire success of the present work. 

The subjoined table of contents of the first two volumes will give the best 
idea of the comprehensive character and diversified contents of this work : 

VOl. u. 



No. 1. Life of Louis Philippe. 

Tale of Norfolk Island. 

Story of Colbert. 

The Employer and Employed. 

Time Enough. By Mrs. S. C. Hall. 

Manual for Infant Management. 

Piccioli, or the Prison Flower. 

Life in the Bush. By a Lady. 
No. 2. William Tell and Switzerland. 

The Two Beggar Boys. A Tale. 

Poems of the Domestic Affections. 

Life of Grace Darling, &c. 

Story of Maurice and Genevieve. 

Beligious Imposters. 

Anecdotes of Dogs. 
No. 3. La Kochejaquelein and the War in 
La Vendee. 

Journal of a Poor Vicar. 

Romance of Geology. 

History of the Slave Trade. 

Walter Ruysdael, the Watchmaker. 

Chevy-Chase, and the Beggar's 
Daughter of Bethnal-Green. 
Each number will form a complete work, and every third number will be furnished 
with a title page and table of contents, thus forming a beautifully illustrated volume 
of over 500 pages, of useful and entertaining reading, adapted to every class of readers. 
The whole to be completed in thirty numbers, forming ten elegant volumes. 

\ry This work can be sent by mail to any part of the country. A direct remittance 
to the publishers of six dollars will pay for the entire work. This liberal discount 
for advance pay will nearly cover the co3t of postage on the work. Those wishing for 
one or more sample numbers can remit accordingly. 

tt^** Booksellers and Agents supplied on the most liberal terms. 



No. 4. 



Life of Nelson. 
The Temperance Movement. 
Story of Peter Williamson. 
Joan of Arc, Maid of Orleans. 
Annals of the Poor — Female In- 
dustry and Intrepidity. 
Slavery in America. 



No. 5. A Visit to Vesuvius, Pompeii, and 
Herculaneum. 

Story of Baptiste Lulli. 

Select Poems of Kindness to Ani- 
mals. 

Wallace and Bruee. 

Cases of Circumstantial Evidence. 

Story of Richard Falconer, &c. 

No. 6. The Qoldmaker's Village. 

The Last Earl of Derwentwater. 
The Heroine of Siberia. 
Domestic Flower-Culture. 
Insurrections in Lyons. 
The Hermit of Warkworth, and 
Other Ballads. 







CHAMBERS'S 

CYCLOPEDIA OF ENGLISH LITERATURE : 

A SELECTION OF TEE CHOICEST PRODUCTION'S 

OF ENGLISH AUTHORS, FROM THE EARLIEST TO THE PRESENT TIME. 

CONNECTED BT A CRITICAL AND BIOGRAPHICAL HISTORY. 

EDITED BY ROBERT CHAMBERS, 

ASSISTED BT BOBERT CARRUTUEBS AND OTHER EMINENT GENTLEBEIC. 

Complete in two imperial octavo volumes, of more than fourteen hundred pages of 

double column Utter press: and upwards of three hundred 

elegant illustrations. 



The Cyclopaedia of English Literature, now presented to the 
American public, originated in a desire to supply the great body of the peo- 
ple with a fund of reading derived from the productions of the most talented 
and the most elegant writers in the English language. It is hoped hereby 
to supplant, in a measure, the frivolous and corrupting productions with 
which the community is flooded, and to substitute for them the pith and 
marrow of substantial English literature ; — something that shall prove food 
for the intellect, shall cultivate the taste, and stimulate the moral sense. 

The design has been admirably executed, by the selection and concentra- 
tion of the most exquhite productions of English intellect, from the earliest 
A.nglo-Saxon writers down to those of the present day. The series of 
authors commences with Langland and Chaucer, and is continuous down 
.0 our time. We have specimens of their best writings, headed in the sev- 
eral departments by Chaucer, Shakspeare, Milton, — by More, Bacon, 
Locke, — bv Hooker, Taylor, Barrow, — by Addison, Johnson, Goldsmith, — 
by Hume, Robertson, Gibbon, — set in a biographical and critical history 
of the literature itself. T7ie whole is embellished with splendid wood en- 
%ravi>igs of the heads of the principal authors, and of interesting events con- 
nected with their history and writings. No one can give a glance at the 
work without being struck with its beauty and cheapness. The editor, 
Robert Chambers, is distinguished as the author of many valuable works, 
Uid as joint editor of Chambers's Edinburgh Journal. 

To those whose educational privileges are few, who reside at a distance 
from libraries, and whose means are limited, such a book must be of un- 
speakable value, — a whole English Library fused down into one 
cheap book ! Any man, whatever his avocation or his location, may thus 
possess, in a portable and available form, the best intellectual treasures the 
language affords. To those more fortunate individuals who may have the 
advantages of a regular course of education, this m tltupi in parvo will be 
a valuable introduction to the great galaxy of English writers. 

As an evidence of the great popularity of the work in England, it may be 
Stated that no less than forty thousand copies have hern sold in lest than 
three, years ; and this almost without advertising or being indebted to any 
notice in the literary Reviews. 

In addition to the great number of pictorial illustrations given in the 
English edition, the American publishers have greatly enriched the work by 
the addition of fine steel and mezzotint engravings of the heads of Shak- 
speare, Addison, Byron, a full length portrait of Dr. Johnson, and a beauti- 
ful scenic representation of Oliver Goldsmith and Dr. Johnson. 

Q~p- Booksellers and Agents supplied on the most liberal terms. 

GOULD, KENDALL & LINCOLN, Publishers, BOSTON. 



